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Shop Direct expects push on promotions to persist

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Multichannel retailer Shop Direct Group indicated today that it expects the widespread push on promotions, which is currently such a dominant feature of the UK retailing landscape, to intensify in the run-up to the vital Christmas period.

The owner of brands such as Littlewoods.com and Very.co.uk said this morning that EBIDTA in the 12 months to June 30th 2011 dropped £16 million year-on-year to £116 million, with heavy promotional activity one of the key factors behind the fall in earnings.

Brand investment and part-absorption of rising inflation costs in overseas markets also impacted the retailer’s bottom line, but the company is positive about future growth despite admitting that the slowdown in consumer spending has continued into the last three months.

Steve Makin, Group Finance Director at Shop Direct, told Retail Gazette: “Underlying profits have moved back due to the cost of inflation in overseas markets and the increasingly intense level of promotional activity.

“One year ago two in ten items were on promotion, but this has increased to three in ten in the last 12 months, and it has had an impact on margins.

“Promotional activity will continue for some time to come and it will become more intense.”

Shop Direct said it was pleased with its overall sales performance and, due to a change in accounting principles and in order to align financial reporting with its key trading seasons, it chose to display sales for the 61 weeks to June 30th 2011.

Compared to the same period in 2010, total group sales excluding VAT were up 5.5 per cent to £1.94 billion, which represents a positive performance in a tough economic environment.

Additionally, whereas pre-tax losses were £21 million last year they fell to £7.8 million for the 12 months to the end of June.

Meanwhile, in a move that highlights Shop Direct’s ambitious growth plans for the foreseeable future, it also announced today that it will be launching a Very.com brand in the US and 47 other countries – predominantly in Europe – from next month.

Makin said the company was “excited” about the plans, which come after the retailer saw year-on-year online sales growth of 8.5 per cent in 2010/11.

Despite the wider retail industry witnessing a tough post-recession 20 months the online retail sector has continued to grow, and Shop Direct’s variety of brands across this platform stand it in good stead for what will inevitably be a difficult time ahead.

Commenting on today’s results, Group CEO Mark Newton-Jones remarked: “We’re pleased with the growth in sales and the progress we’ve made in what’s been a tough year for all retailers.

Since the year-end we have seen a marked slowdown in consumer confidence and spending, we don’t believe the environment will become any easier in the foreseeable future and, as such, we are budgeting for a tough year ahead whilst continuing to invest in areas for future growth.

“Whilst the current retail environment is difficult, online retail is still in growth and with our breadth of product and leading brands we believe we are well placed to weather the storm.”

Published on Wednesday 19 October by Editorial Assistant

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