Hobbs back in profit as TFG ownership pays dividends

Midmarket womenswear retailer Hobbs seems to be prospering under the control of fashion group TFG London, with the company saying in its latest accounts that the year to March 30 2019 saw sales and operating profit rising. And the company swung to a net profit having made a loss in the previous year.

The company’s turnover rose to £135.4m from £132.6m, while adjusted EBITDA was up to £9.6m from £8.5m. It had made an operating loss of £3.8m a year ago, but this time the operating profit was £6.9m and its net profit reached £4.9m, much better than the £4.8m loss last time.

It was the best result in quite a few years and while the sales difference doesn’t look huge, given that the latest period covered 52 weeks while the year ending March 2018 had covered 61 weeks due to a shift in reporting dates, it was impressive.

It’s clear that Hobbs managed to shake off the very tough environment in its core UK market, even though its margin dropped. Its headline gross margin for the period stood at 61.4%, down from 63.3% in the previous 14-month period. This was due to the impact of foreign exchange, plus its wholesale ops growing during the period as they generated a lower margin.

The firm’s first full year under the ownership of TFG London coincided with one of the worst periods for UK fashion retail as Brexit uncertainty and the shift to online continued to wreak havoc. So why did Hobbs do so well?

Its growth had a lot to do with product, of course, but it was also attributable to new concession and store openings, as well as continued growth within its online channels. In the UK, the company opened one store and 23 concessions. And it successfully launched 10 concessions in three international markets, compared to just one in the previous year.

The company also said it managed to keep control of costs. While administrative expenses represented 15.2% of sales, compared to 14.2% in the previous year, that was because the cost base increased as a result of absorbing additional group charges, as well as investment in team performance and its online operations.

Analyst Pippa Stevens at GlobalData said the year’s success bodes well for its future prospects and TFG’s experience in the premium market (it also owns Whistles and Phase Eight) “will have aided Hobbs’ positive performance”.

In the face of House of Fraser’s and Debenhams’ ongoing problems, for the period ahead, she thinks that the retailer should improve its visibility through John Lewis and Next, “by offering more options and exclusive designs to these partners”. And it should also capitalise on its online opportunities further by introducing third-party pickup options, such as Collect+ and a delivery saver scheme to boost loyalty.

After its head of design departed in October 2019, it additionally needs to “ensure that it maintains its distinct design handwriting; while it also has opportunity to increase the number of options within its petite collection, as the lack of ranges among its premium competitors provides Hobbs with a unique selling point”.

And above all, she thinks it needs to “reduce its reliance on discounting, with its Black Friday deals, which included a blanket discount of 25%, at risk of threatening its premium credentials”.