Brait bets on New Look revival
Group says turnaround plan is in place at UK retailer to solve problems caused by loss of broader market appeal
After marking down the value of its investment in New Look to zero, Brait is focusing on a turnaround plan for the British fashion retailer, which is in place but is not yet apparent.
The investment holding company said on Wednesday that New Look’s problems, caused by targeting the “young and edgy” segment of the market and losing its broader appeal, coupled with reduced flexibility and ability to respond to new trends, had cost it sales, with revenue falling 4.5% in sterling terms. Like-for-like sales fell 8.6%. Third-party e-commerce sales increased 17%, while sales made on New Look’s own website contracted 7.6%.
Last week, Brait marked down New Look’s net asset value (nav) from R18.7bn to nil as it waits for the turnaround strategy to bear fruit.
“Part of the recovery plan includes a broader appeal product at good value,” said a spokesman for Brait, who declined to be named in line with company policy, after the release of its results for the six months to September. “New Look remains the largest retailer by value for womenswear in the UK for women between the ages of 18 and 34.”
Troubles at New Look have dragged Brait’s overall NAV to R66.62 at the end of September, from R105.06 at the end of September 2016.
“Brait now trades at a discount to NAV of roughly 30%, which is a narrowing of the discount to nav in the comparative interim period, despite the severe decline in share price we have seen over the period,” said Shaun Murison, senior markets analyst at IG Markets.
The market took the results in its stride, with Brait’s shares falling 3.26% before recovering.
“Brait’s results showed a continued trend in declining earnings and net asset value,” said Murison.
“The relatively muted price action today follows on from the market having already digested the numbers from last week’s guidance by the firm via a trading statement.”
Murison said although New Look continued to disappoint, Brait remained committed to it and hoped for a turnaround after having shaken up the executive team “in an attempt to exact change in the subsidiary’s fortunes. Until then, Brait is assigning zero value to the asset”.
Brait has replaced New Look CEO Anders Kristiansen with Alistair McGeorge, who previously led a turnaround at the retailer. New Look founder Tom Singh is taking a more active role, working alongside Roger Wightman, who has been reinstated as chief product officer.
“The turnaround plan will take time to come through as the product range for the quarter ended December 2017 is already committed and the impact of changes to underlying costs take time to annualise,” said the Brait spokesman. “The plan is expected to take increasing effect from early 2018 onward, but trading is expected to remain challenging for the next financial year.”