New Look - ahead of the call

All, 

Since receiving data from other retailers incl. Matalan, performance was expected to be dismal, but on the bright side Inventory is down £41m (even if £15m are due to a later cut-off date). 

Many of us had begun to question the company’s claim it could free up WC, given its large stock position in H1, but units are now down 24% YoY (Accruals and other payables also down £27m).

£25m of that inflow went to pay down trade creditors, who last year represented an inflow of £10m.

We note that the shift in cut-off dates, losing one strong week in September vs. adding one slow week in December after Boxing Day may have adversely impacted top-line, but positively driven down WC.

In more detail:

- Q3 LfLs were down over 7%, only slightly cushioned by a 1.1% point better GM, leaving Gross Profit down £7m. NL however contend that their 

- Brick&Mortar sales were in line with market - down -5.7%. 

- E-Commerce by contrast was disappointing - down 9.4%, which seems to have helped its profitability however, which has mode than doubled to £8m at EBITDA level.

- Mark-downs were down £40m YoY, or -13%, which will have been responsible for the £23m drop in sales. 

- FX presented a £12.8m YoY headwind (£5,3m to do with last year 1-off inventory valuation boost), making up the remaining change in GM. Bought-in margin therefore seems to have been down 1% only.

- Lower sales were made-up by lower Administrative expenses of £-8m YoY, thus YoY EBITDA was flat at £36m for Q3.

- WC represented a £33m inflow vs. £16m last year.

- CapEx was £-9m vs £5m last year.

NCF therefore was ~ at £60m, leaving 

Cash of £162m.

The company has since settled coupons in cash.

 Operations:

- OTB is still 20% of March orders. And lead times are another 9 days shorter YoY at 89days. That is the quantifiable core of the strategy and its good to see progress in this area.

- 10 stores closed and 3 opened. The net reduction of the estate continues.

- The company has included some 46 stores in a “Revive Program” it is looking to double. Results are apparently 6% sales growth. We are curious.

- E-Commerce has seen a drop in traffic. Performance around key dates was positive, but the daily traffic seems down.

- Three women appointed to leadership team. We welcome that change. It is strange to see UK retailers so dominated by men when their primary target is female.

Q4:

- In recent years NL have made a habit of sinking Q4 with a myriad of adjustments and restructuring expenses. But even without that, Q4 is the weakest quarter in the year. 

- Based on our projections, (similar mark-down differential, slightly increased FX headwind, continued E-Commerce weakness) Q4 EBITDA will be flat - and that would be the best result in years. 

- Thus Full Year Adj. EBITDA would remain at ~ £80m.

- That would put leverage at around 4.5-4.7x

Wolfgang