Skinny margins set to hit profits at Marks Electrical

A £1.9m investment in a new ERP system and a drop in margins saw profits fall at Leicester-based online electrical retailer Marks Electrical fall by just under a half to £820,000 for half year to September 30.

Revenue grew by 9.3% to £58.8m, but this was hampered by a “significant” reduction in average order values (-9%) with the firm’s volume growth outstripping the pace of its revenue growth.

During the period, Marks completed replacing its legacy enterprise resourcing planning system with Microsoft Dynamics 365, a move which hit its bottom line. The firm will also take a £750,000 hit from the rise in National Insurance contributions, announced in the recent Budget.

Marks now expects to post full-year revenues of around £120m with EBITDA “in excess” of £4m. Last year’s EBITDA was £5m.

Mark Smithson, chief executive officer, said: “The first half has included two of the largest structural changes the business has seen, the departure from Euronics and the implementation of our new ERP system, but despite these, we continued to remain profitable and cash generative and grew revenue by 9.3% to £58.8m.

“As the consumer has continued to trade-down, we have evolved our business to meet those needs, perhaps leaning too much into non-premium products, which has led to erosion in our premium average order value. The knock-on implications of this on our distribution costs are something that we need to actively address moving forward by pivoting back to our historically premium focussed operating model.

“Whilst this pivot back to premium is likely to have an impact on the speed of our revenue growth, we are focussed on continuing to execute our strategy of driving profitable market share gains, ultimately enabling the Group to deliver long-term value creation and become the UK’s leading premium electrical retailer.”