Shop Direct has suffered widening pre-tax losses despite increased sales following an “unexpected surge” in PPI claims.

The online retailer booked a statutory pre-tax loss of £185.5m in the 52 weeks to June 30, 2019, up from £24.7m the previous year, which the business attributed to exceptional costs of £310m, including a provision of £241m “to cover customer redress relating to historical shopping insurance sales, following an unexpected surge in claims submitted ahead of the August deadline”.

The retailer, which posted a 3.3% uplift in group EBITDA to £271m during the period, said it is “currently evaluating a number of funding options” to meet the “additional liability” of PPI claim costs, which surged in the weeks ahead of the August 29 claim deadline.

But chief executive Henry Birch stressed that the cost would have “no impact on the business in terms of our core operations”.

“PPI is by its nature historical and is separate from the performance of the business and the future performance of the business. We are drawing a line under this cost now. Along with the rest of the industry, it is more than we had envisaged but it has no bearing on our future plans,” he added.

Birch said that PPI claims and any subsequent wariness about credit would not impact Shop Direct’s strategy going forward.

“The core product of us being able to provide ways for people to split the cost of what they buy is still very much valued by our customers and frankly is how the world goes round, whether that is credit cards, mortgages or car loans,” he said.

“The idea that credit is somehow discredited or is not going to be part of our model is absolutely not the case. The PPI has no bearing on that in terms of the value and power of our model.”

Henry Birch

Henry Birch said the rebrand to Very Group ‘will bring our corporate identity in line with our flagship retail brand’

Operating profit before exceptional items increased 0.7% to £226.2m.

Shop Direct recorded a 1.8% increase in group revenue to £2bn during the year, bolstered by a 7.1% jump in sales at Very to £1.5bn. Littlewoods sales declined 11.3% during the period to £505.3m.

Despite this sales decline, Birch reiterated Shop Direct’s commitment to the Littlewoods branch of the business.

“Because Littlewoods has declining sales it creates an anchor in terms of our retail sales. But it is an important part of our profitability. We look very carefully at topline sales, profit and cash generation.

“I’d never take a swipe at our competitors but we deliver across those three metrics, and sometimes the industry gets obsessed with topline growth and overlooks what goes on in terms of profit and cash generation. We are a very resilient, stable, secure and consistently growing business across all those metrics, and that is important to us.”

The number of group customers rose 0.7% year on year to 4 million, driven by a 5.7% uplift in Very customers to 3 million.

The online retailer, which is set to rebrand to The Very Group later this year, recorded strong sales growth in clothing and footwear, up 2.9%, supported by an 11.8% boost in sportswear sales. Electrical revenue rose 1.2% bolstered by smart tech and mobile sales, up 12.9% and 7.5% respectively.

Birch added that across Very, clothing and footwear sales rose 8.4% with sportswear sales up by approximately 20%, toy sales rose just under 22%  and electricals rose 5.6%. 

“The thing that sometimes gets lost in the mix is that with the combination of Very and Littlewoods mean Shop Direct numbers look more muted than they are in reality for Very. When you drill down into the categories we are generating double-digit growth in some really key, high-growth categories,” says Birch.

Birch says that Shop Direct’s multi-category proposition provides the business with ”a natural hedge and resilience” to bolster fast-growing categories while others experience more muted sales, giving the business an advantage over ”specialist category retailers.”

Shop Direct’s Very app sales climbed 22.9% year on year, representing 29.5% of Very orders across all devices, with the app conversion rate up 4.6%.

Birch says that developing the retailer’s mobile app with the intention of driving downloads and increased average spend will be a key priority for Shop Direct in the year ahead. 

“The economic landscape is likely to remain unpredictable in the months ahead, but we are confident that our successful and resilient business model, which offers customers the brands they love across numerous categories combined with flexible ways to pay, means we will continue to perform well,” said Birch.

“The next phase of our evolution will be as The Very Group. The rebrand, which will happen later this year, will bring our corporate identity in line with our flagship retail brand, helping us to attract and retain more of the best people and giving our business even greater momentum.”