Laura Ashley Share Blog – Year Ended 2017

Laura Ashley has now released their final results for the year ended 2017.

This is pretty silly, comparing a 52 week year to a 74 week one but that is all we have to go on as they have not furnished us with like for like comparisons which shows a certain disregard for investors I feel. Anyway, obviously both revenues and cost of sales were down which gave a gross profit £62.7M lower. Amortisation and depreciation both fell, but there was in increase in losses on disposal of fixed assets and a £700K increase in forex losses before a decline in other operating expenses meant that the operating profit fell by £16.9M. There was a £500K reduction in the losses from an associate and tax charges fell by £4.6M which gave a profit for the year of £4M, a decline of £11.9M year on year.

When compared to the end point of last year, total assets declined by £3.8M driven by a £5M fall in cash, a £4.8M decline in property, plant & equipment and a £1.3M decrease in investments in associates, partially offset by a £6.6M growth in inventories and a £1.9M increase in receivables. Total liabilities increased during the year as a £2M decline in current tax liabilities and a £2.4M decrease in pension liabilities were more than offset by a £9.3M growth in borrowings. The end result was a net tangible asset level of £33.5M, a decline of £8M year on year.

So, again, comparisons with last year are pretty meaningless but the net cash from operations fell by £18.1M to £14M. There was a cash outflow from working capital but this was less than last time and after tax payments fell by £1.6M the net cash from operations was £900K, a decline of £9M year on year. This just about covered the £500K of property, plant and equipment purchased along with the £300K of intangible assets to leave a free cash flow of just £100K. Obviously this came nowhere near the level needed to pay the £14.5M of dividends and after the group also repaid £1.3M of loans, there was a cash outflow of £15.7M and a cash level of -£10.7M at the year-end.

The stores made a profit of £3.8M, a decline of £17.7M year on year. The E-commerce and mail order division made a profit of £13.8M, a fall of £3.2M when compared to last year. The hotel division made a loss of £200K, an improvement of £100K when compared to 2016. The non-retail division made a profit of £10.3M, a decrease of £1.3M year on year.

Total like for like retail sales were down 3.1% but online sales were up 5.6% on a like for like basis. Trading conditions have been challenging for the year and the impact of weak sterling has also contributed to the overall fall in profit which the group has experienced. In the UK, the property portfolio decreased by 25 stores to 167 stores. Of these, 22 were Homebase concession stores following the takeover of Homebase by Wesfarmers. Over the coming year the group expect to open two new stores and close three.

Home accessories sales for the year saw a 3.7% like for like increase with an ever improving seasonal offering. Furniture sales saw a 5.3% like for like decline. This is the group’s most price sensitive category and they are reviewing the end to end supply chain to ensure good value. Decorating sales fell by 4% on a like for like basis, with the performance below expectations. Fashion sales decreased by 10.4% on a like for like basis. This was a disappointing performance and the group have restructured the fashion team and appointed a new Head of Fashion who joined in July.

In June the group opened their first tea room, located in their hotel. It has apparently been met with customer acclaim so further tea rooms may be opened as they develop the model. They have also acquired a new licence partner, the Future Group in India, and will be opening their first stores in the country in September. They have continued to grow their online presence in China having launched a website there in November and they have seen progress in both of these territories and are also in discussions with a number of potential partners in other territories in the Far East.

During the year the group had an exceptional charge of £2.8M due to the impairment on the Singapore property following a recent valuation.

At the current share price the shares are trading on a PE ratio of 15.6 which falls to 12.5 on next year’s consensus forecast. After the final dividend was cancelled, the shares are still yielding 5.8% due to the interim dividend, which is forecasted to remain in place next year. At the year-end the group had a net debt position of £32.3M. Going forward, trading for the seven weeks to 19th August is performing in line with management expectations.

Overall then this has been a difficult year for the group. LFL profits are almost certainly down, net assets declined and the operating cash flow fell with barely any free cash being generated. The group has been hit by the closure of its Homebase concessions but it seems that fashion is the big problem, with double digit declines really not good enough. Until there is some sign of a turnaround, I don’t think the forward yield of 12.5 and dividend (if it is maintained) of 5.8% offers good enough value.

On the 15th August the group released a profit warning. Their results will show an exceptional £2.8M impairment charge due to the revaluation of their new Singapore office block. In addition, trading conditions have continued to be demanding so the board expect pre-tax profits to be materially below market expectations.


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