Quiz, the Glasgow-headquartered “fast fashion” retailer, has ramped up its cost saving goals in a move that could result in scores of store closures as it turns its attention to building online sales.
Unveiling a first-half profit wipe-out, the group said it had taken actions to address the performance of its UK stores and concessions through renegotiating rents where possible and exiting several loss-making concessions.
Over the next two years, it will look to renegotiate or terminate leases in half of its UK stores.
Quiz, which operates about 70 standalone stores and some 170 concessions in the UK and has a growing international presence, has booked an exceptional charge of £7 million in relation to store impairments and “onerous” leases.
It posted a pre-tax loss of £6.8 million for the six months to 30 September, compared with a £3.8m profit in the same period a year ago, chiefly as a result of the £7m charge. On an underlying basis, profit before tax tumbled 85 per cent to just £600,000.
Group revenue during the period fell by 5 per cent, year-on-year, to £63.3m.
Founder and chief executive Tarak Ramzan said: “Whilst it is disappointing to report a decline of profits year-on-year, management are focused on implementing the actions identified further to the group’s business review conducted earlier in 2019.
“We are pleased to report progress improving gross margins and reducing costs across the business, and will look for further improvements to develop our omni-channel offering.
“We have also taken actions to address the performance of our UK stores and concessions through renegotiating rents where possible and exiting a number of loss-making concessions.
“Over the next two years we will have the opportunity to renegotiate or terminate leases in 50 per cent of our UK stores.
“However, before leases can be renegotiated at current and projected sales levels a number of our stores will lose money.”
Online revenues held steady at £20m during the first half. Bosses said international franchise sales were up 7 per cent with growth in its franchises in the US and the Middle East.
In October, the company unveiled plans for a cost-cutting exercise to save between £2m and £3m a year, with a bigger push towards online sales.
Emma-Lou Montgomery, associate director from Fidelity Personal Investing’s share dealing service, said: "Quiz shareholders will probably be left scratching their heads. There are certainly more questions than answers raised; not least by the 85 per cent fall in underlying pre-tax profits.
"This is predominantly an online business, yet the group’s underlying stores and concessions seem to be providing the biggest drag on profits. So why not ditch them? It looks like up to half may close, as it attempts to renegotiate or terminate leases over the next two years.
"In the meantime they will just be an additional cost that the group could do without. The all-important Christmas trading period is underway and investors and management alike will be hoping Quiz has what it takes to stand out in the fiercely competitive fast-fashion retail marketplace it’s currently looking a little bit lost in."
John Moore, senior investment manager at Brewin Dolphin, said: “These results are a bit of a nightmare before Christmas for Quiz. Revenue decreases at its bricks and mortar offering is not a particular shock; however, flat online revenue to mitigate that loss is a shock and disappointment.
"The City has been worried about Quiz for some time now and today’s figures will do little to ease those concerns. The implementation of its root and branch review will be absolutely critical to Quiz’s future prospects – there is a significant amount of work to be done to make the brand distinct, self-sufficient and capable of handling the wider challenges in retail."