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New Look hit by old problem.

Byline: Steve Pain

Shares in discount fashion retailer New Look fell more than ten per cent yesterday after it reported a sharp downturn in underlying sales - blaming poor May weather and the high street trend for cheaper fashion.

But group chief executive Stephen Sunnucks maintained the sales shortfall was a 'short-term issue' and insisted the group had not erred on this season's fashion ranges.

In the eight weeks to May 24 the group's UK sales fell 1.2 per cent and were down 6.6 per cent on a like-for-like basis - way short of some analysts' forecasts of likefor-like growth of one to two per cent.

The retailer's gross margin was also down 0.2 percentage points over the period.

'Clearly current trading is not where we want it to be.

'We did have a pretty good April, but we had a much tougher May,' Mr Sunnucks confirmed.

He stressed the first eight weeks of the year are set against exceptionally strong comparatives last year - when like-for-like sales were up 10.6 per cent and gross margin was up 3.1 per cent - and noted the poor weather in early to mid-May had been unhelpful in shifting summer lines.

However, he explained the major factor contributing to the sales shortfall was that this year's fashion trends of vests, threequarter trousers and mini-skirts are at much lower average selling prices than last year's denim and gypsy look. Average selling price was ten per cent lower over the period, despite a nine per cent increase in unit sales.

The shortfall was exacerbated by New Look being more aggressive in following trends this year - 35 per cent of sales versus 30 per cent last year.

'The next phase of product is going to come in during the course of July and that product - a sixties and eighties look of casual jackets and longer sleeved tops - is at a selling price much closer to last year.

'So we think this is a short-term issue for us,' said Mr Sunnucks.

'Although it has been a difficult few weeks, it doesn't change our view of the future. Our strategy is absolutely on track.' New Look's joint house brokers, Cazenove and Citigroup Smith Barney, cut their current year to end-March 2004 pre-tax profit forecasts from pounds 96 million and pounds 94 million respectively to pounds 91 million.

But the forecasts came before the impact of New Look's purchase of a 49 per cent minority shareholding in NewMim - the French joint venture which trades as Mim - from members of the Amzallag family for a maximum of pounds 30.2 million.

Citigroup, which also cut its target price from 300p pence to 250p, told clients that even allowing for difficult comparatives the current trading shortfall 'represents a decisive loss of share'.

The disappointment on current trading overshadowed New Look's full year to March 29 2003 results and its French acquisition.

New Look reported a 36.8 per cent rise in pre-tax profit to pounds 85.2 million - in line with analysts' expectations which ranged pounds 82 million to pounds 86 million. This was achieved after a 9.9 per cent increase in group sales to pounds 643.3 million.

Shares closed down 2 1 /2p at 22 1 /2p.
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Title Annotation:Business
Publication:The Birmingham Post (England)
Date:May 30, 2003
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