- Company blames slowdown on Budget
- Full-year profit growth cut in half
- Higher costs may be mitigated
Apparel retailer Frasers (FRAS) stunned the market by cutting its full-year 2025 adjusted profit targets, blaming a dip in consumer confidence due to the Budget, while increasing its cost forecast for the 2026 financial year.
The shares fell as much as 114p or 15% to 627p at one stage before recovering to sit at 662p, down 78p or 10% on the day which still made them the worst performer in the FTSE 100 by some distance.
SOGGY FIRST-HALF SALES
For the six months to the end of October, the firm reported an 8.4% drop in retail revenue to £2.46 billion driven by a reduction of 7.6% or over £100 million in UK sports retail sales.
Alongside this, premium lifestyle sales were more than £75 million or 14% lower at £473 million due to ‘challenging’ market conditions.
The firm said it had been working hard on its Elevation strategy, strengthening global strategic brand partnerships, growing Sports Direct and its Frasers Plus loyalty and consumer finance business, and it was starting to see the benefits from integrating recent acquisitions as well as from its ambitious stock-reduction target.
However, the company claimed both ahead of and after the Budget consumer confidence had weakened meaning recent trading conditions had been tougher than anticipated.
As a result, it lowered its adjusted pre-tax profit guidance for the year to April 2025 from £575 million to £625 million, which would have represented 10% growth using the mid-point of the range, to £550 million to £600 million, meaning growth will be half the level it previously expected.
In addition, the firm warned it faced additional costs of £50 million due to changes in the Budget but it was ‘working hard to mitigate these in order to maintain our profitable growth ambitions’.
EXPERT VIEWS
Analysts Anubhav Malhotra and Wayne Brown at Panmure Liberum pointed out that even though Frasers had cut its guidance for the full year, there was still ‘a lot of work to be done’ in the second half for it to achieve its new target.
Although the forward valuation of under seven times April 2025 earnings looks cheap, say the pair, ‘the near-term outlook remains challenging and will continue to weigh on the shares’.
Andrew Wade and Grace Gilberg at Jefferies were more conciliatory, flagging profit growth at Sports Direct and the premium division despite falling sales thanks to self-help measures.
Although they lowered their estimates to reflect the updated guidance, they still believe the shares are undervalued and the firm has a ‘significant medium-term growth opportunity’.
