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The Very Group Reports A Shift From Fashion Sales Into Electricals & Toys

Very parcel

The Very Group Limited and its subsidiaries have reported on trading for the nine month period ended 31 March 2020.

On 13 January 2020, Shop Direct Limited changed its name to The Very Group Limited.

Covid-19
At The Very Group, the safety and well-being of our colleagues and customers remains our priority. In line with government advice we are ensuring the protection of our colleagues whilst we have kept our online store open for customers at a time when they need us more than ever. Colleagues who can work from home have been able to do so with minimal disruption including contact centre teams who have transitioned to home working for the first time. At sites which remain open to meet fulfilment needs, stringent safety measures, such as frequent cleaning, fewer colleagues on site at any one time and social distancing, are in place.

We have a strong business and a dedicated group of colleagues working to serve our customers. We have a multi-category offer including fashion, electrical products, white goods, homeware and furniture and seasonal products, which provides resilience against movements in individual product categories. 

In the final two weeks of the period to March 2020, we saw a shift in sales mix, primarily out of fashion, which saw a sharp drop and into electrical, toys, and games. Overall, trading levels have been solid but with a deterioration in retail margin with a change in product mix away from higher margin fashion into lower margin electrical goods. However, with the relatively higher purchase price of electrical goods comes higher credit utilisation, and therefore long-term revenue and profit. Given the relatively short period which we saw an impact from Covid-19 within the 9 month reporting period to March 2020, this has not had a material impact on these results.

We are working closely with our product partners to optimise the range and availability of products in demand from approximately 30 countries who continue to provide key supply chain support. Our financial services products are a critical part of our offer: approximately 95% of our sales are via a credit account. We believe our combination of products and credit provision can alleviate the concerns our customers have about Covid-19 in a relevant way and we have seen an increase in customer account applications, including credit accounts.

Covid-19 update post March 2020 reporting period
Post the end of March, we have seen the following:
▪ The shift in sales out of fashion and into the likes of electrical, toys and games, seen at the end of March, has continued;
▪ Trading has strengthened during April with retail sales up over 30% against prior year; 
▪ A 3 month payment deferral for customers impacted by Covid-19 has been implemented and we are seeing take up of this below that which was included in the stress test scenario (see below). In line with FCA guidance, these accounts have been treated as up to date and their credit files not adjusted. 

Covid-19 stress testing and liquidity
It is clearly extremely difficult to quantify the expected impact of Covid-19 on our business. However, we have stress tested our forecasts for a number of scenarios and deployed strategies and tools to closely manage cash flow and mitigate any issues.

Whilst it is not our policy to provide forward guidance, we made the decision during March to plan against a stress test scenario of a decline in retail sales relative to the prior year of 25% in quarter 4 of FY20. We believe that decisive action against a prudent stress test best ensures the long-term health of the Group, our ability to serve customers, and our desire to protect jobs. Our actions include cost reduction, tight management of capital spend, a reduction in our cost of employment and sensible inventory management.

Against this scenario we are confident that we have sufficient liquidity for the next 18 months, and we are confident we will satisfy covenant requirements. As explained above, trading has been significantly better than this scenario.

At March 2020, we have cash and bank balances of £78m and which has increased to over £100m at the end of April 2020, reflecting the combination of our actions and strong trading.

Review of the business
The profit for the period of £33.2m (Q3 FY19 YTD: loss of £23.5m) includes pre-exceptional net finance costs of £83.9m (Q3 FY19 YTD: £75.1m) and exceptional costs of £17.0m (Q3 FY19 YTD: £105.0m). Reported EBITDA before exceptional costs increased 1.6% to £179.2m (Q3 FY19 YTD: £176.4m).

£75.0m has been invested by way of equity injection in November 2019 and a further £25.0m in February 2020. In February 2020, £50.0m of ‘C2’ notes have been issued under the securitisation facility, completing the £150m funding requirement announced in October 2019. Q3 FY20 net assets of £44.5m (FY19: net deficit £88.5m).

Group revenue
In a challenging retail market Very revenue grew 2.4% to £1,182.6m (Q3 FY19 YTD: £1,154.9m), benefitting from its combination of famous brands, mobile-first customer experience and options to spread the cost of purchases using credit. Littlewoods revenue was down 13.4% to £349.9m (Q3 FY19 YTD: £403.9m) including a 1.6%pts impact from the closure of the Littlewoods Clearance business. Littlewoods Clearance was closed to drive cost efficiencies and benefit profitability of the overall business. Group revenue decreased by 1.7% to £1,532.5m (Q3 FY19 YTD: £1,558.8m).

Retail revenue
Retail revenue decreased by 0.2%. Our flagship brand Very grew revenue by 3.5%, in a challenging market. Our robust business model which offers a multi-category range has continued to provide resilience against adverse movements in individual product categories.

Fashion & Sports revenue increased by 1.4% with Quarter 3 performance impacted by a softer market followed by impact from Covid-19 towards the end of the quarter, with customers prioritising purchases linked to living and working from home, but which demonstrates the benefit of the multicategory model. Men’s, Women’s and Children’s sportswear clothing have continued to perform strongly. Electrical revenue grew by 1.6% in Quarter 3 albeit declined by 0.3% in the year-to-date.

The quarter’s growth was driven by strong performances in computing, gaming and vision, as customers responded to the new lockdown measures. Audio continued to perform strongly and has grown by 60% in the year to date. Home declined by 4.0% in the year-to-date despite strong growth seen in Garden Tools, particularly in Quarter 3. Other Categories (which represents 12% of the retail revenue mix, includes Toys, Gifts, Beauty and Leisure) grew by 0.5% against prior year, with an improvement in Quarter 3 particularly driven by Toys, which grew by 6%.

Source : Very Group Limited

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12 June 2020

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