Retailer’s shares plunge 35% after double-whammy of warnings

Shares in online shopping group Studio Retail plunged 35% to its lowest level in a decade after it revealed a double whammy of another profits warning and a hole in its working capital.

The value retailer now expects its adjusted pre-tax profits to be £28m-£30m for the financial year which ends in March. It is a huge cut that comes less than 10 weeks after it slashed its original forecast of £42-£45m to £35-£40m.

Studio is also “exploring a range of options to meet a short-term working capital funding requirement”.

The Accrington-based group currently has a fully-drawn revolving credit facility of £50m and is in discussions with its lenders. It has a 12-month EBITDA of about £50m and is “well within” its key gearing covenant of 1.75x.

However Studio’s shares plummetted from Friday’s closing price of 159p down to 90p in early trading before ending the day down 35% at 103p. Its share price has now fallen 60% in the last three months, valuing the group at £90m.

Studio is the latest online retailer to disappoint shareholders. Boohoo Group’s share price is around 75% below its pandemic peak reached in June 2020, THG is 75% down on its IPO price in October 2020, and ASOS’s shares have lost 60% of its value since April.

Studio’s problems are being made worse by the widespread supply chain issues affecting retail and other sectors. Shipping costs increased, delays meant it had stock which arrived late and remains unsold, while it must now make commitments about future stock earlier than it would normally because of “ongoing nervousness in supply chains”.

It will raise selling prices during the fourth quarter and into the next financial year to offset some of the inflationary cost increases.

Studio Retail’s chief executive Paul Kendrick sought to reassure shareholders, emphasising a good performance over Christmas.

He said: “The fundamentals of Studio’s business model are solid, notwithstanding the market challenges that have been exacerbated by our over-commitment to stock in the near term.

“The trading performance over Christmas, with sales up 18% over two years, shows our offer is resonating with a customer base of 2.3m. We will continue to drive the long-term profitability and success of the group.”