27 Bagleys Lane, Imperial Wharf, London, SW6 2QA
Laura Ashley is primarily a UK based department store. In the stores it sells furniture, home accessories, decorating products and fashion. It also operated a few store in Ireland and France and has a franchise business targeting more overseas growth. The group also has a small licencing division and has recently purchased a hotel.
Looking at the income statement:
When compared to last year, these results are a little disappointing. The operating profit is £6.7M lower at £17.9M. Looking at the revenue, we see that this has hardly changed year on year with a lower revenue from the stores due to a reduction in the number of stores run counteracted by an increase in other areas – particularly e-commerce/mail revenue (where an increase in e commerce has more than made up for a fall in mail order revenue) and a £1.7M increase in non-retail revenue, driven by the franchising operation. The cost of sales were on a par with last year to leave gross profit slightly up. Indeed, now non retail and e-commerce/mail order now make up more of the profits than the stores do.
Under operating costs we see a £1.6M increase in wages, a £1.3M in distribution costs and a £1M increase in other admin expenses. However we see that the 2011 figures have benefited from some one-off income – particularly a £4M gain on disposal of property and a £1.9M benefit from a store disposal premium. So, when taking these into account, the £6.7M reduction in operating profit does not look so bad.
There were some modest gains on last year for the share of profit from the associate in Japan with some small swings to gains in interest payments/receivables to leave the profit before tax £5.7M down on last year at £18.4M. A higher taxation amount then leaves the profit for the year £6.3M down at £13M.
So, given the one off gains for 2011, these results are actually much better than it originally appeared, proving how important it is not just to take the headline figures.
At this point I am now going to have a look at the earnings per share to see how that compares.
| EPS | 2012 | 2011 | |
| PROFIT AFTER TAX | 13,000,000 | -6,300,000 | 19,300,000 |
| NUMBER OF SHARES | 727,763,000 | 0 | 727,763,000 |
| EPS | 1.8 | 2.7 | |
| EPS EXCL EXCEPTIONALS | 1.8 | 2.0 | |
| SP | 21.5 | -2 | 23.8 |
| P/E | 12.0 | 3 | 9.0 |
At the time of writing the P/E ratio is a non-demanding 12 whilst various broker forecasts put future EPS at 2.0 which gives a forward P/E ratio of 10.7 which seems fairly decent value to me.
Now, moving on to the balance sheet:
An increase in both assets and liabilities has caused the net asset level to remain fairly stable. As far as the assets are concerned, we see that there has been a sizeable jump in the value of freehold property, up £5.4M to £9.2M with a smaller reduction in the value of leasehold property. This increase is the addition of the Corus Edgewarebury hotel to the portfolio of the group. There is also a £1M increase in investments in both associates and quoted shares. Finished goods inventory is up nearly £4M to £51M while cash is down £3.5M to £35M, still leaving a sizeable cash asset.
Total liabilities are up £5.7M to £87M. Within this, trade and other payables are the big risers with trade payables up £3.3M to £30.5M and other payables up £4.2M to £21.3M. There were not any other significant rises.
We can see here that there was a £3.5M cash outflow for the year compared to a massive £21.1M inflow last year. Looking more closely at the figures we can see that cash flow operations fell nearly £3M to £23.2M. As we have already seen, there has been an increase in the value of inventories but an increase in payables has more than counteracted this to give a net cash inflow from operations of £24.4M (down £4.7M on last year). There was a £2M increase in payables which related to the increase of trade payable days from 30 to 33 – a good way to control cash flow somewhat.
There are two items which seem to have caused the negative comparison with 2011. Last year there was a £12.1M cash gain from the sale of property and equipment (compared to 0 this year) and £8.9M was spent on the purchase of property, plant and equipment this year, compared to just £1.6M last year. This was made up predominantly by the purchase of the Edgewarebury Corus Hotel, which cost £5.8M) Other items of note was a £4.2M reduction in the cash spent on tax and a hike in dividends paid out, which increased the cash paid on this by £5.4M. Given the large cash reserve, this dividend hike seems sustainable assuming there is no deterioration in the cash from profits in future years.
These figures should be taken in context. Last year was an exceptionally good year for the group with regards to profit and revenue, and despite this year being not quite so stellar, the profits for 2012 are still, historically speaking, very good.
The revenue streams for Laura Ashley seem to be diversifying. As mentioned, the franchise and e-commerce/mail order segments now contribute more combined than the traditional stores and the group is now branching into hotels! They purchased the Edgewarebury Corus hotel from Corus Hotels ltd for £5.8M which will continue to be run by Corus hotels and Laura Ashely will gain 4% of the gross operating profit of the hotel, which is capped at £50K. It may be relevant here that Corus hotels are part of the Malaysian United Industries group (the largest shareholder of Laura Ashley), make of that what you will. I am not sure why they purchased the hotel, it is certainly not going to make much money for the group. Apparently it will be used for “brand marketing development”.
The group continue to reduce their selling space as they close unprofitable stores. During the year 7 were closed (with one new store opening) which gives an insight into the falling revenues for UK stores and the larger contribution from other sources as the group now sells products through its website to Germany, Austria, Italy and Switzerland in addition to the UK.
Within the UK, most product lines increased sales. Like for like furniture sales were up 4.1% with particular success in the expansion of the bed category and continued success with mirrors; LFL decorating sales were up 4.7% with the curtain and blind business growing particularly well; LFL fashion retail was up 5.6% with a new range of perfumery and related products launched but LFL home accessory sales fell 0.2%, with the blame placed on an increasingly competitive market. Franchise income continues to increase with 5 new stores in this category with 2 stores now opened in Moscow. The group is targeting emerging markets with franchises. Licencing income increased by a pleasing 13% to £3.5M as licenses were awarded for new categories, including sewing machines, bathroom furniture, lingerie and t-shirts.
Sales for the first few months of 2012 are looking good so far, up nearly 11% on a like for like basis.
Overall then, I believe this is a fairly steady set of results. Although the profit levels look poor when compared to last year, this must be taken in the context of 2011 being an exceptional year for Laura Ashley and there were a number of one-off factors that affected profitability. Similarly for the cash flow. As far as revenues are concerned, there is a good improvement in e-commerce, licensing and franchising operations, slightly counteracted by the reduction in sales space for UK stores. I am not sure the hotel purchase is a good idea but it seems the group wanted to do something with the cash it has accumulated (it also increased dividends. There is currently a P/E of 12, which is fairly decent and it now has a mammoth 9.3% dividend yield (although this does not seem to be covered very well by earnings). HOLD, perhaps a tentative buy.
Dividend Yield: 9.3
Change in Net Cash: -3.5M
Gearing: -64%
Future P/E: 10.7