Smiggle has warned that its Australian parent company Just Group could pull the plug on funding for its UK business if economic conditions deteriorate.
The children’s stationery specialist admitted that it “continues to rely on the ongoing financial support” of Just Group and cautioned that its owner had “reserved the right to review the provision of this financial support”.
Smiggle blamed its owner’s stance on the “uncertain and volatile” macroeconomic environment in the UK market. It said that “ongoing Brexit uncertainty has continued to impact the entire UK economy and consumer confidence”.
Despite the challenging backdrop, Smiggle insisted that Just Group’s “current intentions” were to provide funding “to enable it to meet its liabilities” for at least the next 12 months.
The turbulent environment has dramatically put the brakes on Smiggle’s profit growth and store expansion.
In its latest accounts, covering the year to July 28, 2018, the retailer said EBIT tumbled 35.1% to £7m. Net profit slumped 32.9% to £5.7m on sales of £69.6m, which were up 25%. Online sales now account for around a fifth of that total.
Top-line growth was driven by its rapid store expansion programme. Smiggle launched 133 standalone stores between February 2014 and July 2018. But since then it has opened just one new shop and three concessions as it refocuses on ecommerce in the challenging UK market.
Retail Week understands that Smiggle has been having informal discussions with landlords about securing rent reductions, just five years after it launched in Britain.
However, there is no suggestion that the business could launch a more formal process, such as a company voluntary arrangement (CVA), in order to slash its property costs.
Smiggle’s stationery rival Paperchase is in the midst of a CVA of its own, which will see the retailer close at least five of its 145 stores and cut rents on 28 others.