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Liberty store shines but not its shares, just yet
Archived article dated Tuesday April 28th 2009
There is no doubt that the Liberty store in London is a highlight of the capital's retailing offer and that the investment in the outlet which culminated in the recent 'Renaissance of Liberty' launch will have added to its lustre.
By Glynn Davis, City editor
The only problem is that I can't help but feel we have been here before with Liberty. Haven't there been previous renaissances under former management's who have grappled with the issue of converting the long esteemed history of the Liberty store and the appeal of its brand into hard cash and profitability.Under current chief executive Geoffroy de la Bourdonnaye they certainly have a man with the right name for the job of leveraging the Liberty name and turning the business into a profitable operation. Although profitability still remains a thing of mystery at the group de la Bourdonnaye does at least reckon it will be a reality within the next three years.
Undoubtedly the early signs are good as the major investments made in the business are bearing some fruit, judging by the recent full-year results for the 12 months to December 31, with a sales uplift of nine per cent to £50.2 million.
This was largely down to the healthy contribution from the restructured Liberty Art Fabrics division (effectively a wholesale business) that enjoyed 25 per cent sales growth and a 35 per cent increase in EBITDA. The division has sales operations in the US, Russia and China with its modern design fabrics now being sold to the likes of Nike and Louis Vuitton.
While this unit was restructured in 2007 the bulk of the one-off costs during the 2008 financial year were associated with upgrading the flagship London store, the opening of the independent 'Liberty of London' fashion accessories shop on the capital's Sloane Street, and the launch of the company's first transactional website.
Although the effects of these investments are not reflected in the numbers for the 12 months to end-December 2008 they have delivered double-digit in the first quarter of the current financial year. These early signs of success have led to Seymour Pierce to reduce its pre-tax loss forecast for 2009 from £5.5 million to £4 million, and a mere £1.6 million for 2010. This compares with the £7 million loss for 2008, which represented an increase on the £6.4 million the previous year.
A major concern for analysts and investors are the heavy cost of this future sales and profits improvements as the levels of debt at the group have increased - with the peak of £25 million due this year. This may be relatively manageable compared with many other retailers but it will have to be handled against a loss-making backdrop until 2011 at the earliest.
And despite the improving trends, Liberty has enjoyed previous light-at-the-end-of-the-tunnel experiences before an approaching train has squashed them, so investors are rightly cautious about any such thing as a re-rating of Liberty.
The share price has reflected this caution by basically going nowhere over the past month as it sticks rigidly to the 220p level, which is some way below the 310p it hit 12 months ago and represents significant underperformance against the rest of the retail sector.
Until profitability looks more of a cast iron certainty then the share price looks set firm and Liberty therefore remains a difficult company to get too enthusiastic about. So for now at least it might be better to visit its London store and spend your money there instead of buying into its shares.
glynnd@theretailbulletin.com
Tagged as: liberty
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