Quiz’s share price today continued to fall in response to a profit warning issued as sales growth slowed in its stores and on third-party websites in the first half of its financial year. The multichannel fast fashion retailer’s share price stood at 62.2p at the time of writing, after opening at 92.5p this morning, and down from 150p before it issued that profit warning on Friday afternoon.
In the trading statement, Quiz said that despite a 19% rise in revenue over the six months to September 30, including 44% growth online, sales growth had slowed in its stores and concessions (+9%, £35.1m) during September and via third-party websites during the first half.
It also plans to write off £0.4m as a result of House of Fraser, where it has a number of concessions, going into administration in August. On Friday, it said it was likely to see a fall in profits – with earnings before interest, tax and asset write downs (EBITDA) downgraded from a previously expected £7m to £5.5m in the first half. In the full-year it expects to see profits come in at £11.5m, on sales of £138m – if sales via third-party retailers do not recover in the meantime.
Quiz chief executive Tarak Ramzan said September 2018 had been "very challenging", but that the most recent trading week had seen "an improving trend". The retailer now plans to focus on sales via Quiz’s own website, where sales grew by 70% during the half-year, and to work with its third-party website retailers to boost sales. It is also focusing on international markets, where sales grew by 16% to reach £11.6m. The retailer has three standalone stores in Spain and on Friday also said that it was "pleased with the development of sales in the USA at this early stage", as well as with franchises in other international markets.
"Although online sales through our third-party partners have been disappointing and will impact the group’s performance for the full year, the changing mix towards increased own-website sales will support profitability growth moving forward," he said. "The continued growth of the Quiz brand in combination with our well-invested infrastructure and flexible business model continue to underpin the board’s confidence in the group’s long-term prospects."
Commenting on the falling share price, Paul Hickman, analyst at Edison Investment Research, today said the trading update had taken the market by surprise. "Despite satisfactory trading on its own websites, third party websites as well as its own shops have performed less strongly in September. When translated into pre-tax profit for the year, that results in forecasts being downgraded by up to 35%. In a brutal reaction, the shares were this morning down around 55% on Thursday’s close.
"Plenty is going right at Quiz. Its own websites are growing their sales at 70%, generating higher margins, and investment is pressing ahead on schedule. The new QUIZ X TOWIE ranges are being well received. International markets are developing well, particularly in the US, although the franchised format means margin will be limited.
"Management says it’s working closely with its third-party online partners. These include Amazon, Zalando, Debenhams and Dorothy Perkins, as well as partners in India and the Middle East. But the warning is on the assumption that third-party websites’ performance will remain flat for the full year. It also reflects the weaker September store footfall (which now seems to be recovering), and the small matter of a £0.4m provision for House of Fraser concessions.
"It’s embarrassing both for management and its advisors to have to admit that earnings will be down on expectations just over a year after the IPO. Management expresses confidence in the long-term prospects. But the market will now be looking for answers about short-term ones.”
Quiz is a Top150 retailer in IRUK Top500 research.
Image courtesy of Quiz