New Look has reported a return to operating profit as its turnaround plan continues and it prepares to refinance.
The retailer reported group operating profit of £38.5m for the 39 weeks to 22 December 2018, from an operating loss of £5.1m in same period in 2017.
Core adjusted EBITDA rose by 75% to £97.7m year on year as the retailer continued to make cost savings and improve its operational and financial position.
Revenue fell by 5% to £1.01bn. However, the retailer said this was in line with expectations of a focus on driving more profitable sales.
Negative own-brand like-for-like sales growth improved from -10.7% in the same period in 2017, to -2.3%.
As part of its continued turnaround plan New Look made annualised cost savings of £78m.
It said in-store and ecommerce conversion rates continued to improve year on year.
Alistair McGeorge, executive chairman of New Look, said: “Today’s results show that we continue to make good progress in delivering improved operational and financial stability despite the challenging retail environment. Our return to broad-appeal product continues to enhance profitability, our supply-chain lead times have improved, and we have exceeded our planned cost savings. However, we have more work to do and our focus is now on accelerating our turnaround plans.
“Central to this is finalising our financial restructuring, which will secure the future and long-term profitability of the company. The proposed restructuring has provided our colleagues and suppliers with renewed confidence, which will benefit the company at every level. The right capital structure and a materially deleveraged balance sheet will provide us with the financial flexibility to better attack our future amid challenging market condition.”
In January the retailer announced a debt-for-equity swap aimed at reducing its long-term debt by 80% from £1.35bn to £350m. The news was followed by an announcement that New Look Belgium, which operates six stores, was filing for insolvency and appointing administrators.
The retailer announced in October that it was closing its 120 stores in China, and told Drapers it was seeking to do the same across Europe.
Whilst the results are a good first step for New Look, retail analyst Richard Hyman said the hard work is yet to come.
”Getting their housekeeping in better shape was obviously a prerequisite but that’s the easier part,” he said. “This is market where generating sales growth is really difficult and their sales have been broadly going backwards for a while so I think reversing that is going to be tough.”
”The real issue with New Look as a brand is that it’s not very clear what it stands for and that’s a real weakness. If you look right across the clothing market those that are doing really well are the ones with a tight focus, tight brand and clear handwriting. They know exactly who their customer is and don’t try and cater for anybody else.
”They’ve also got far too many stores – there’s quite a bit of editing to be done still in my opinion.”
Senior retail analyst at GlobalData Sophie Willmott agreed that the retailer needs to refocus its brand.
She said: ”These strategic moves show that New Look has had to make big changes in order to succeed however it must now focus on reigniting appeal amongst shoppers – improving its brand identity and product range in order to drive the volume growth that is much needed to bolster performance.”