Quiz PLC (LON:QUIZ) shares dropped sharply on Tuesday after the fashion retailer scrapped its final dividend after its ful-year pre-tax profit slumped by 97% due to costs related to the collapse of House of Fraser and an increased level of discounting.
Pre-tax profit fell to £0.2mln in the year to the end of March 2019, down from £8.5mln a year earlier as the fashion retailer took a £0.4mln bad debt provision after House of Fraser entered administration.
READ: Quiz to "work productively” with collapsed Debenhams as it keeps previously downgraded earnings forecast
House of Fraser, which stocks Quiz products, was bought out of administration by Mike Ashley’s Sports Direct International PLC (LON:SPD) last August, leading to a raft of store closures, which hit suppliers.
Debenhams, another one of Quiz's concession partners, entered administration in April. Quiz said it was present in
10 of the 50 Debenhams stores that have been earmarked for closure, representing lost turnover of £2mln per year. These stores are likely to remain open for most of the 2020 financial year.
Higher level of promotions hurt margins
Excluding one-off costs, Quiz still saw underlying pre-tax profit fall by 94% to £0.6mln in fiscal year 2019 as it held more promotions to attract shoppers.
High street retailers have been forced to cut prices to lift sales due to online competition and subdued consumer spending.
As a result of a higher level of discounting, Quiz said its gross margin fell to 60.7% from 63.0% a year ago.
Group revenue, however, gained 12% to £130.8mln with online sales up 34% to £41mln, UK stores and concession sales rose 4% to £66.9mln and international sales were up 8% to £22.9mln.
Quiz suspends dividends
Quiz said it would suspend dividend payments in order to restore profitability and therefore has not declared a final payout.
The group said current trading remains challenging but sales, excluding sales from trading relationships that have terminated, rose 4% in the two months to May 31.
New turnaround strategy
The company also announced the outcome of a review to turn around the business.
As part of the new strategy, Quiz plans to reduce its exposure to UK department stores by reducing its concessions by 20 in the coming year. It will also close 33 of its own stores.
In a bid to lift sales, the firm said it will introduce new product categories, and to grow margins, it will improve sourcing, increase prices and manage stock levels.
Quiz said it will also slash costs to improve profits after investing heavily in the business since its listing on AIM in July 2017.
“Whilst trading conditions have remained challenging in the year to date, the board remains confident that underpinned by our flexible business model and an increasing online focus, the group can return to sustainable profitable growth,” said Tarak Ramzan, Quiz founder and chief executive.
In a note to clients, analysts at City broker, Peel Hunt commented: "The review is sensible but turning QUIZ round will take time. It's unlikely that the shares are going to do much at all and in the absence of a turn in momentum, we see no reason to hold them."
Peel Hunt reiterated a 'sell' rating and 12p target price on Quiz shares, which were down 21% at 21.90p in afternoon trading.
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