Thursday, February 29, 2024

ScS makes good progress despite losses in H1

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In its interim results report for the 26 weeks ended 28th January 2023, ScS says it performed in line with expectations during the half, with the acquition of boxed sofa brand Snug bringing further diversification and market share potential to the group.

Delivered sales increased +3.4%, with improvements in the supply chain reducing lead times, yet ScS suffered an underlying loss before tax of £4.7m – which was, says ScS, nonetheless £0.9m ahead of the prior period and typical of H1 performance, which includes significant marketing expenditure to support the winter sale (profitability is substantially H2 weighted).

Gross profit was £67.8m (up +0.3% YoY), not counting any contributions from Snug – the set-up and acquisition of which were largely accountable for the £0.8m costs incurred during the half, says ScS.

Excluding stock sales, gross margin was in line with the prior period, but with a decline of -1.3% due to an increase in display stock sales as the group rolled out a “decluttering programme”.

ScS ended the period with a strong balance sheet, with cash of £76.9m (was £87.9m for H1 FY22). It also completed its share buyback programme, returning £7m to shareholders.

The half saw ScS achieve achieve various operational gains. The winter sale was strong, with the last 10 weeks of the period seeing LFL order intake growth of +2.6%, and market share gains were achieved during the period.

As well as the acquisition of Snug, ScS opened two new stores, in York and Swindon, and implemented its new concept design into two further stores.

ScS achieved Kitemark certification for domestic furniture from the British Standards Institute (BSI), and exceeded 400,000 reviews on Trustpilot, making ScS the fifth most reviewed company in the UK (it also maintained its 5-star rating, with ScS being the only company in the UK’s top-10 most reviewed to do so).

LFL order intake momentum continued to improve after the period end, with growth of +5.7% in the seven weeks to 18th March. However, one year LFL order intake for the 33 weeks is currently down -2.8%.

Looking ahead, there is planned investment in a further eight stores to adopt ScS’ concept design.

The retailer describes its balance sheet as “resilient”, with cash of £83.2m as of 18th March, and no debt.

CEO Steve Carson comments: “The group made good strategic progress in the first six months of the financial year and continued to take market share. We are pleased with the strength of our winter sale performance and the subsequent increase in order momentum over the last two months.

“The macroeconomic environment continues to be challenging and we are mindful of the pressures faced by many of our customers. Therefore, continuing to focus on our value-driven proposition is more important than ever so that everyone is able to create the home they love.

“The board continues to believe that progress with the group’s strategy, ongoing cost management and a robust balance sheet places it in a strong financial and operational position. The outlook, therefore, is positive and ScS remains on track to deliver full-year profit before tax in line with market expectations.”

ScS’ board believe that consensus market expectation for underlying profit before tax for the full year is £7.7m. This excludes the impact of Snug in FY23. ScS concludes that it is “pleased with the Snug acquisition, which we expect will be earnings accretive in FY24. We intend in invest in the business throughout H2 and expect Snug will report a second half loss before tax of £1.0m”.

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