Trouble Retail business (UTS) warned that it was exploring options to meet a “short-term working capital funding need”, having overcommitted to buying shares amid a difficult global supply chain disruption.
The online value retailer also lowered its profit forecast for the second time in three months due to the impact of “market-wide shipping issues” and weak post-Christmas demand.
The seller of affordable clothing, homewares, toys and gifts now estimates that adjusted pre-tax profit for the current year is expected to be between £28m and £30m.
That’s below the £35m the market was looking for and the lowered forecast of £35-40m the retailer gave in November.
The news sent shares in Studio, in which Mike Ashley Frasers (FRAS) retains a 27% stake, down from 37% to a five-year low of 99.8p.
SUPPLY CHAIN PAIN
Digital value retailer Studio pointed out that trading had improved as the important third quarter leading up to Christmas Eve progressed, helped by better stock availability in November and December when “key shipments eventually withdrawn.
However, demand in the first weeks of January was “relatively subdued” and margins are under pressure as Studio clears outdated seasonal inventory and incurs additional costs from shipping delays and port congestion.
The company warned that actions aimed at improving short-term working capital would further squeeze margins in the remaining weeks of the year.
Industry-wide supply chain challenges have also resulted in the late arrival of unsold inventory that Studio will seek to sell throughout 2022.
The retailer is sitting on a higher than normal level of inventory at this time of year, a situation “further exacerbated by current and future season stock commitments to be made earlier than normal due to the continued nervousness of supply chains”.
Studio explained that it had identified that these higher levels of good quality stock, in a market where demand is expected to decline, are “at a level that creates an excess stock position as we sell the ranges to our customers.” .
“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.”
Managing Director Paul Kendrick insisted: “The fundamentals of Studio’s business model are solid, 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.’
LEARN MORE ABOUT STUDIO RETAIL HERE
Date of issue: January 31, 2022