Quiz shares plunge on shock profit warning

Fast fashion retailer Quiz Clothing saw its shares plunging on Friday after it issued an unexpected trading update for the first half of its fiscal 2019 year that came complete with a profit warning. 


Quiz's profit warning took the market by surprise


It now expects to make “not less than” £5.5 million in the six months up to September 30, which is £1.5 million less than previously predicted. How so? The six months may have seen group revenue rising by 19% to £66.7 million “despite challenging external trading conditions,” but that was less than had been expected.

So what went wrong? At a surface level, not a lot. The company said that sales at its UK stores and concessions rose 9% to £35.1 million while online soared by as much as 44% to £20 million. International sales looked strong too with a 16% rise to £11.6 million.

And it said that sales in its UK standalone stores and concessions “were particularly strong during the summer months.” 

But it added that the “the group experienced a lower sales performance across its stores and concessions during September reflecting less footfall.” And that wasn’t all that went wrong. As it had already told us, the cost of House of Fraser's administration to the firm in the six-month period was £0.4 million “in relation to outstanding debtor balances and other potential costs.”

But the biggest issue seems to have been online. That may seem odd given the huge leap in e-tail sales, and the firm saying that its own websites saw sales racing ahead by a massive 70% with margins also strong. However, the main problem was that e-sales “through third-party websites were at a similar level compared to H2 [of fiscal] 2018.” This performance was behind its expectations and seems to have declined specifically during the second quarter of the financial year. 

“We are working closely with our third-party online partners to try to address this trend during the second half,” Quiz said, and while it didn’t specify which retailers, or how many of them, were the problem, we know that Quiz’s partner vendors include Debenhams, Zalando, Dorothy Perkins, Next and House of Fraser.

STRONGER TRADING

At least there are clear areas of operation where the brand is firing on all cylinders and there’s no denying that its own stores and websites are buoyant. And its international ops are strong too. 

Its international growth was largely underpinned by expansion in its franchise operations and it said it’s “pleased with the development of sales in the USA at this early stage and the benefit of franchises opened in other international markets in the previous year, along with the revenues generated from the three standalone Spanish stores which opened last autumn.”

So can we expect the profits pressure from the last half to have been a one-off? That’s not certain. “The board has taken the prudent assumption that should the trend in online third-party sales continue during the second half of the financial year, group revenue for the full year to 31 March 2019 would be lower than current market expectations at approximately £138 million and EBITDA for FY 2019 would be in the region of £11.5 million,” it said.


Quiz x TOWIE


CEO Tarak Ramzan remained upbeat, highlighting the good growth against a tough backdrop, the success of the TOWIE collab and “an improving trend following a very challenging September in the UK” during the most recent trading week.

Ramzan added that a greater focus on web sales through he company’s own sites “will support profitability growth moving forward.”

But while investors reacted badly, sending the shares down 30%, analysts took a less harsh view. GlobalData’s Emily Salter said the company appears to be taking the right steps by focusing more attention on its own websites and by partnering with appealing brands such as TOWIE to launch special collections. And she added that the company’s stores remain crucial as a support to the websites, with touching and feeling (as well as collecting) in-store being hugely important to customers today, and also being something that pureplay rivals such as Asos and Boohoo can’t offer.

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