Moody’s lowers House of Fraser outlook, expects 2017 to be tough but manageable
Credit rating agency Moody’s seems to be impressed by some aspects of House of Fraser’s business but still lowered its outlook for the firm to negative from stable this week.
Despite the department stores retailer’s 2.7% increase in comparable sales over the Christmas trading period, Moody’s thinks that less impressive sales in the first three quarters of the year will mean lower profits on an EBITDA basis in the year to January.
And it thinks that 2017 could be tough too due to rising inflation on the back of higher import costs after the pound’s value fell against a basket of international currencies. It said that inflation and squeezed disposable incomes would be likely to hurt discretionary spending in Britain and it believes House of Fraser “would find it difficult to recover to previous levels of profitability and therefore its credit metrics would remain weak for the rating category."
Despite the gloomy outlook, Moody’s maintained its B3 rating on the business and also had some upbeat things to say about the firm. It pointed out its “positive name recognition as an iconic UK department store, known for providing a premium offering and shopping experience.”
It also hailed its “broad customer base, which primarily comprises affluent customers with solid discretionary spending power,” and “the successful rollout of its online business which drives most of the revenue growth.”
And Moody’s said the typical earnings volatility associated with pure-apparel retailers “is diluted in HoF's case due to the combination of a diverse product range which includes health and beauty, homeware and fashion accessories [and] the mixture between in-house designs, products bought from third-party brands and the use of concessions.”
House of Fraser is working hard ot boost sales and late last year opened its first department store in China. This week it also previewed the late-March launch of a dedicated athleisure area in-store and online.
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