SHARES in clothing retailer Quiz slumped nearly nine per cent in early trading after it reported a loss of £6.8 million and warned of more losses ahead while its estate is overhauled.
The Glasgow-headquartered retailer took the hit in its six-month accounts primarily due to a £7m one-off charge related to onerous leases and a re-evaluation of the store estate.
Quiz cited economic uncertainty and shoppers spending less on the high street as it sunk into the red, and said leases at half of its stores are expected to be up for renegotiation.
The retailer added that even though actions to address the poor performance are under way, a number of stores will continue to be loss-making.
The pre-tax loss of £6.8m to September 30 was set against a £3.8m profit in the same period a year ago.
READ MORE: Scottish retailer stuck in high street doldrums
On an underlying basis, which strips out the one-off costs, it made a profit of £2.7m.
Tarak Ramzan, founder and chief executive, said its estate restructure is well advanced.
He said: “Much of the UK retail sector has remained under pressure during the period impacted by macro-economic uncertainty as well as the accelerating structural shift to online retailing.
“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.”
He added: “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.”
READ MORE: Quiz chief paid £217,000 in latest financial year
UK sales during the current period fell 11% compared with a year earlier, to £63.3m, which was a global decrease of 5% after international growth.
By comparison, online sales held up and were flat during the period at £20m.
Quiz also opened two stores and nine concessions during the period, and closed seven sites, as it took a £400,000 hit from the collapse of House of Fraser, where it also operated from.
It currently has 73 stores and 171 concessions.
Overseas, sales were up 7% with growth in its franchises in the US and 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.
Its earlier review identified “a number of pressing challenges to be addressed and opportunities to be capitalised upon”.
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.”
READ MORE: Quiz revamps share options in response to stock fall
He said the estate transformation is a key element, adding: “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.”
Emma-Lou Montgomery, associate director from Fidelity Personal Investing’s share dealing service, said: “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?”
She said: “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 under way and investors and management alike will be hoping Quiz has what it takes to stand out in the fiercely competitive fast-fashion retail marketplace.”
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