Studio Retail Group will improve its working capital requirements due to high inventory levels

An online retail company, Studio Retail Group is exploring ways to improve its working capital requirements due to high inventory levels.

In a business update for the third quarter period, through December 24, 2021, today, the Accrington-based group revealed that widespread supply chain challenges in 2021 not only resulted in increased shipping costs, but also unsold inventory that arrived late, which must be sold throughout 2022.

Consequently, the group has a higher than normal stock level at this time of year, aggravated by the need to acquire products for the current and upcoming seasons earlier than normal, due to jitters in supply chains.

The group said: “We are exploring a range of options to meet the resulting working capital financing needs, including discussing the current level of our working capital facilities with our long-standing UK lenders.”

The group currently has a fully drawn revolving credit facility of £50m and, with a 12 month EBITDA of around £50m, is well within its key leverage ratio of 1.75x.

He said he was considering other controllable actions to increase near-term liquidity, alongside steps already taken to manage the pace of some of his medium-term capital investments. It will increase selling prices in the fourth quarter and in fiscal 2023 to offset some of the inflationary cost increases.

Today’s update also revealed that the group has lowered its expectations for its adjusted pre-tax profit, due to additional costs from shipping delays and port congestion. He said his current adjusted PBT expectation for the full year would now likely be in the £28-30m range.

In its previous update, the interim results announcement last November, the group said it expected PBT for the full year to be around £35-40m, compared to Previously announced £42-45m.

However, he said trading was improving in the third quarter, helped by greater inventory availability in November and December when major shipments were finally unmoored.

Product sales in the eight weeks leading up to the interim results were down 21% from a year earlier. But, in the remaining five weeks of the quarter, which included Black Friday, product sales were 9% higher than a year earlier. This brings performance for the third quarter as a whole to 10% less than the exceptionally strong performance seen during the second national lockdown period last year and, cumulatively for the first 39 weeks, down 5%.

Comparisons to last year are distorted due to street closures caused by COVID-19. The band said a more appropriate comparison is to performance two years ago.

On this basis, Q3 product sales increased by 18%, bringing the total growth compared to FY20 for the first 39 weeks of the year to +28%.

Total active customer base is 2.3 million, down 2% from last year and up 23% from two years ago. This is reinforced by the progress made by the group on cash customers and its base of active credit customers is up over two years by 4% to 1.4 million, a slight decrease of 5% compared to the last year.

Looking ahead, Studio Retail Group said the third nationwide lockdown in early 2021 created exceptionally active and supportive business conditions during the fourth quarter of last year. It expects to return to more normal trading conditions in the fourth quarter of this year, assuming there are no more lockdown restrictions.

This is also a time when consumers traditionally spend less on discretionary retail, and this is likely to be compounded by the higher cost of living, including increases in fuel and energy prices.

Thus, the group plans to adopt a more cautious approach to growth in the coming months in order to strengthen its capacities and resources for later in 2022.

He revealed that demand in the first weeks of January was relatively subdued, with some margin erosion as the group eliminated some seasonal inventory that could not be carried over.

Managing Director Paul Kendrick said: “The fundamentals of Studio’s business model are strong, despite market challenges which have been exacerbated by our excessive commitment to short-term storage.

“The commercial performance of Christmas, with sales up 18% over two years, shows that our offer resonates with a customer base of 2.3 million. We will continue to drive the group’s profitability and long-term success. »

About Donnie R. Losey

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