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February 13, 2019

New Look moves to Q3 profit but more work still required

UK fashion retailer New Look says it continues to make good progress on its turnaround plan, with a return to broad appeal product, improved supply chain lead-times, and cost reductions giving a much-needed boost to third-quarter profit.

By Beth Wright

UK fashion retailer New Look says it continues to make good progress on its turnaround plan, with a return to broad appeal product, improved supply chain lead-times, and cost reductions giving a much-needed boost to third-quarter profit.

For the 39 weeks to 22 December 2018, the company reported group underlying operating profit of GBP38.5m (US$49.6m), compared to a loss of GBP5.1m in the prior year.

Revenue, however, slipped 5% to GBP1.02bn from GBP1.07bn last year, in line with expectations as the group focused on more profitable sales. New Look brand like-for-like sales, meanwhile, fell 2.3% year-to-date – but the retailer reported its third consecutive quarter of improved total UK like-for-like sales, which were positive at +0.9%.

New Look says broad product appeal performance continues to improve, with better year-on-year profitability seen in key womenswear categories, including dresses and ‘tops and bottoms,’ although some challenges remain in footwear and accessories.

Meanwhile, both in-store and e-commerce customer conversion rates continue to improve year-on-year, it adds, while e-commerce profitability has increased “significantly” on last year. 

“Today’s results show that we continue to make good progress in delivering improved operational and financial stability despite the challenging retail environment,” says Alistair McGeorge, executive chairman. “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 conditions.

“Upon completion of the restructuring, our focus will be to further enhance profitability by continuing to provide fantastic product for our customers, building brand equity and grasping new market opportunities.”

New Look is in the midst of a turnaround strategy that includes a review of its non-core international markets to ensure it is well positioned to drive profitable growth. This recently saw its Belgium division file for insolvency and a decision by the retailer in October of last year to exit its retail business in China. At the same time it reached an agreement with its key financial stakeholders to cut its debt by GBP1bn (US$1.3bn) and raise GBP150m in new capital to boost the business.

It is also on track to close some 85 stores following the group’s Company Voluntary Arrangement (CVA) which was approved by creditors in March. 

Sofie Willmott, senior retail analyst at GlobalData, notes that if New Look’s transformation plan is to be truly successful, the retailer must achieve growth in revenue, with a focus on reigniting appeal amongst shoppers, and improving its brand identity and product range in order to drive the volume growth that is much needed to bolster performance.

“With tough competition on low prices and fashionability from Primark and H&M, New Look must give UK consumers a clear reason to come back and the retailer must steer clear of using promotions for short-term gains,” she says.

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