Digital pureplay retailer The Very Group, formerly Shop Direct, expects to return to profit in the full-year after reporting strong fourth-quarter revenue growth as customers bought more online.
The company, which owns the Littlewoods.com site and is the UK’s largest pureplay digital retailer and financial services provider, said sales grew by 36% in the three months to 30 June, compared with the same period last year. Its share of the UK non-food market grew by over 1 percentage point to almost 3%.
Overall group retail sales, including Littlewoods, were up 28%. While electrical and home grew strongly, Very said a “significant decline” in fashion, which has relatively higher margin rates, resulted in overall cash margin at a similar level to prior year.
“Thanks to the tireless efforts of our colleagues, we performed very strongly in Q4 despite the challenges of Covid-19,” said CEO Henry Birch. “As in the financial crisis, our business model proved adaptable and resilient in the face of volatile conditions and changing consumer buying patterns. We experienced peak trading levels and recruited unprecedented levels of new customers as our online multi-category model supported by financial services came to the fore.
“Despite operational challenges caused by Covid, we adapted and pressed on with the migration to our Skygate fulfilment centre, which will create game-changing new benefits for our customers and our business. Economic conditions will continue to be challenging, but we believe we are more relevant than ever for customers, who are increasingly buying online. We are well positioned to continue the strong trading into the new financial year and will continue to invest to ensure we are at the forefront of whatever the new normal may be.”
For the full year, The Very Group is expecting underlying EBITDA to be in the range of GBP255m (US$333m) to GBP270m, delivering a positive profit before tax.
Strong online capability and multi-category offer
“A broad category offering has been integral to online pureplay The Very Group’s strong performance throughout the Covid-19 pandemic, with consumer preferences transforming almost overnight in the face of a changing environment,” explains Alex Hardy, retail analyst at GlobalData.
“Retail sales increased 36% in Q4 compared to last year, with website visits up 65%, due to the provision of categories that have prospered due to the lockdown. These have performed best for the group, with sales of electrical and home categories up 78% and 53% respectively. Fashion saw a significant decline, in contrast to its clothing online pureplay competitor Asos which [has] raised its full year revenue growth forecast. Nonetheless, a wide product range has enabled Very.co.uk to consistently cater to consumers’ varying tastes and achieve success through challenging times.
“The opening of a new fulfilment centre, ‘Skygate,’ on the day the UK went into lockdown, proved good timing for The Very Group, as it was well-placed to accommodate the channel shift towards online purchasing during the Covid-19 pandemic. The automated warehousing space has allowed for faster processing of orders and returns, on a greater scale, meaning the retailer has become a reliable and attractive option for consumers.
“The Very Group’s credit proposition helped to grow new customers by over 100% in the final quarter with various flexible payment options during a time of economic uncertainty appealing to consumers. With people purchasing big ticket items such as home office equipment and garden furniture, the option to delay payment or pay in instalments has proved invaluable. If the recent uptick in adopters proves to be sticky, the retailer can look forward to a sustained rise in sales.
“While The Very Group was well-positioned to flourish during lockdown, swift and decisive action ensured it achieved profitability. Stress testing led to measures such as cost reduction, inventory control and tight management of capital spend. Combined with increased sales, these cost cuts have helped to boost EBITDA, which is forecast to reach GBP255-270m in FY2019/20. The group will finish the year with over GBP200m in cash, which not only provides long-term security, but also scope for expansion or investments.”