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Arcadia takes £53m VAT-rise hit to keep prices low

Sir Philip Green’s Arcadia Group, which owns chains including Topshop, BHS and Dorothy Perkins, shouldered £53m of costs resulting from this year’s VAT rise rather than pass them on to shoppers.

The figure emerged in Arcadia’s full-year results, largely accounting for a margin decline of 1.8 percentage points.

VAT rose from 17.5% to 20% on January 4, forcing retailers to decide between absorbing the increase themselves – even as their other costs were rising – or shifting the burden onto consumers that are already financially squeezed.

Harsh times for the consumer contributed to an £80.1m fall in full-year total group pre-tax profit to £133.1m on sales of £2.68bn, but Green said he was “reasonably” pleased with performance overall in torrid conditions.

The billionaire tycoon pointed to Arcadia’s cash generation, which fell last year but was still almost £300m, as a key performance measure. “Everyone knows it’s a challenging market,” he said. “When you consider everything the out-turn was OK.”

He flagged strong online growth, the strength of his young fashion retailers such as Topshop and Miss Selfridge, and international growth as high points.

Online sales climbed 27% last year, and were ahead 21% in the first 12 weeks of the current year. That compares with total UK VAT inclusive like-for-likes down 1.8% and underlying retail like-for-likes down 4.3% over the year and, by the former measurement, down 4.4% so far this year.

The retailer has been expanding overseas. Last year, 70 franchised shops opened, bringing the total number of such outlets across the group to 600 in 36 countries, and international expansion has continued since the year end.

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