House of Fraser revealed positive profit-before-tax for the first time in 10 years this morning, despite challenging retail conditions.
The department store group racked up £1.3m in profit-before-tax and sales rose 4.2% to reach a gross transaction value of £1.3bn.
Chief executive Nigel Oddy said he was “relatively pleased” and put the improved performance down to business changes – such as the increased importance of own brands and ecommerce – and behind-the-scenes financial management.
House brand sales rose 4% but were still outperformed by third-party branded sales, which were up 6.7%.
“It was a variety of things,” he said. “The sales increase is obviously important but so is the mix of sales. House brands are obviously higher margin and so good performance from those helped.
“We continued to grow ecommerce this year and have been looking at operational efficiencies too, which will continue.”
Ecommerce shot up 26.8% and accounted for 18.9% of total sales over the year. Oddy revealed that the proportion has grown to more than 20% in the first 10 weeks of the new financial year.
House of Fraser chief financial officer Colin Elliot said that although the main profit drivers were improved trading and margin mix, the retailer was also helped by a refinancing last year, which lowered interest rates during the second half and also helped to insulate the UK business from any headwinds resulting from the troubled Chinese economy – the retailer’s owners are Chinese.
The pair refused to be drawn on how confident that House of Fraser would be able to sustain its improved profitability performance.
Elliot said: “We have barely reached the first quarter of this current financial year. It is pretty tough out there and we see those challenges. We have got everything in place that we need to and we continue to work hard on cost control and with our brand partners.
“But I can’t emphasise enough that we are only 10 weeks into our financial year and this first quarter is very difficult to gauge, with Mother’s day and Easter falling at different times. Until we come out of this quarter it is very difficult to gauge how the business is doing.”
Elliot added that House of Fraser’s ecommerce operations were beginning to reach the point where economies of scale start to benefit margins.
“Am I worried about 0.1%? One would always like it to be stronger but I think it is a good result for us”
Nigel Oddy, House of Fraser
Oddy declined to put a figure on what proportion of sales he would like ecommerce to comprise.
He said he wanted to view the business’ channels as a whole rather than as distinct, but said that he believed ecommerce would reach between 25% and 30%.
Bricks-and-mortar sales inched up just 0.1% in the year but Oddy and Elliot said they were happy with that.
Elliot said: “That is still positive. I am sure there are other retailers who would be pleased to be on the positive side of zero.
“As ecommerce continues to grow at the levels it’s growing we actually feel it is a real result to continue to grow bricks and mortar and not see cannibalisation of that business. Most multichannel retailers will be feeling the pain when it comes to ecommerce.”
Oddy added: “Am I worried about 0.1%? One would always like it to be stronger but I think it is a good result for us.”
So while the pair were cautious, they were still optimistic about House of Fraser’s prospects.
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