31 January 2022

Studio Retail Group PLC

("SRG" or "Studio" or "the Company")

Trading Update

Improved performance on Black Friday and in Christmas period although market-wide shipping issues add downward pressure to profit
Higher stock levels going into Q4, combined with larger stock commitments than usual, lead to need to increase working capital requirements

SRG, the digital value retailer, today gives an update on its trading during its peak Q3 trading period, being the 13 weeks to 24th December 2021, in addition to advising it is exploring a range of options to meet a short-term working capital funding requirement.

Trading Update

Trading improved as the quarter progressed, helped by greater availability of stock in November and December when key shipments were eventually undocked.  Product sales in the eight weeks prior to the Interim Results announcement on 25th November 2021 were down 21% against the prior year.  However, in the remaining five weeks of the quarter, which included Black Friday, product sales were 9% ahead of the prior year.  This brings the performance for Q3 as a whole to 10% below the exceptionally strong performance seen during the second national lockdown period last year and, cumulatively for the first 39 weeks, down by 5%.

The comparatives with last year are distorted due high street lockdowns consequent to Covid-19.  A more appropriate comparison is against the performance two years ago.  On this basis, Q3 product sales were up 18%, bringing the total growth against FY20 for the first 39 weeks of the year to +28%.

The total active customer base stands at 2.3m, which is down 2% on last year and up by 23% on two years ago.  This is bolstered by the progress we have made on cash customers and our active credit customer base is up over two years by 4% at 1.4m, which is a slight decline on last year of 5%.

Outlook

The third national lockdown at the start of 2021 created unusually active and favourable trading conditions for Studio in Q4 last year.  We expect to revert to more normal trading conditions in Q4 this year, assuming no further lockdown restrictions.  This is also a period where consumers traditionally spend less on discretionary retail, and this is likely to be compounded due to the higher living costs, notably fuel and energy price increases.

We therefore plan to take a more cautious approach to growth in the coming months to bolster our capabilities and resources for later in 2022, and in line with the broader market, we are also increasing selling prices in Q4 and into FY23 to offset some of the inflationary cost increases. 

Demand in the early weeks of January has been relatively subdued, with some margin erosion as we cleared some seasonal stock that could not be carried forward.  This has been partially mitigated through the bad debt performance, which was better than expected particularly due to improvements in the recovery rates achieved on defaulted debts.  It is also likely that some of the actions to improve short-term working capital discussed below will further reduce margin in the remaining weeks of the year.  We have also incurred some further costs linked to the shipping delays and port congestion. As a result, our current expectations for Adjusted PBT⁽¹⁾ for the full year are now likely to be in a range of £28m to £30m.

Working Capital Requirements

The industrywide (and acknowledged) supply-chain challenges in calendar 2021 have not only caused higher shipping costs for Studio, but have also led to late-arriving unsold stock of continuity ranges, which will be sold throughout calendar 2022.  This has led to a higher level of inventory than normal at this time of the year.  This is further compounded by commitments to current and future season stock needing to be made earlier than normal due to ongoing nervousness in supply chains. 

In January, we have identified that these higher levels of good-quality stock, in a market where demand is anticipated to soften, is at a level that creates a surplus stockholding position whilst we sell through the ranges to our customers.  We are exploring a range of options to meet the resultant working capital funding requirement, including discussing the current level of our working capital facilities with our long-standing UK lenders.

Studio currently has a fully drawn revolving credit facility of £50m and, with a 12-month EBITDA of c.£50m, is well within its key gearing covenant of 1.75x.

In addition, we are considering other controllable actions to increase short-term liquidity, alongside steps already taken to manage the pace of some of our medium-term capital investments.

We anticipate that the disruption to supply chains will continue throughout calendar 2022, and other inflationary pressures require us to take a more stringent approach to operating costs in FY23 to ensure we can continue to maintain great value products to our customers, and further reduce working capital requirements.

Paul Kendrick, Group CEO, commented:

"The fundamentals of Studio's business model are solid, notwithstanding the market challenges that have been exacerbated by our over-commitment to stock in the near term.  The trading performance over Christmas, with sales up 18% over two years, shows our offer is resonating with a customer base of 2.3m.  We will continue to drive the long-term profitability and success of the group."

This announcement contains inside information for the purposes of article 7 of EU Regulation 596/2014 and Article 7 of Onshore Regulation (EU) 596/2014 as it forms part of domestic law by virtue of the EU Withdrawal Act. The person responsible for making this announcement on behalf of Studio Retail Group is Stuart Caldwell, Group CFO.

Enquiries

Studio Retail Group plc                                                                               +44 161 303 3465

Paul Kendrick, Group CEO
Stuart Caldwell, Group CFO

Tulchan Communications                                                                          +44 20 753 4200

Will Palfreyman

LEI number: 2138006V9ZT2KO6PZY81

Notes to Editors

Studio Retail is a market-leading digital value retailer offering its UK customers a broad range of products and a flexible repayment proposition. Around 2.3m customers are able to enjoy clothing and footwear alongside home and electrical products, plus more seasonal ranges, many of which can be personalised for free. The medium-term ambition is to achieve over £1bn of revenue, through the following three levers for growth: Value, Choice, Payment.

1) Adjusted PBT means profit before tax from continuing operations, adjusted for individually significant items and mark-to-market movements on derivatives.

2) Current market expectations of Adjusted PBT of £35m (FY20: £27.3m, FY21: £48.8m)

Forward looking statements

This document may contain forward looking statements. In particular, but without limitation, nothing contained in this document should be relied upon or construed as a promise or a forecast, including any projection or management estimate, any statements which contain the words "anticipate", "believe", "intend", "estimate", "expect", "forecast" and words of a similar meaning, reflect the management of the Company's current beliefs and expectations and are subject to risks and uncertainties that may cause actual results to differ materially. Given these risks and uncertainties, prospective investors are cautioned not to place undue reliance on such statements. Any forward-looking statements speak only as at the date of this document, and except as required by applicable law, Studio Retail Group plc undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information or otherwise.