Shares in Brisbane-based youth-skewing retailer Universal Store
(ASX:UNI) took a hammering on Wednesday with a late financial year trading update that left the market very underwhelmed.
The shares were down 24% at the close at $3.15 but hit a low of $2.91 in trading after investors had mulled over the details of the update.
Yesterday’s sell off took the loss to date to more than 39%.
Investors turned all negative despite the company telling the market that it was on track to deliver record sales in the year to June 30, with what it described as material growth in earnings before interest and tax (EBIT) compared to the previous year
The company is a retailer of youth and young adult ’trend’ clothing and accessories, and directors told the ASX on Wednesday that “despite a deteriorating macro environment, and increasingly clear signs that the youth customer is seeing pressures on their discretionary spending levels, FY23 is on track to be a year where the Group delivers significant financial and operational milestones.”
It was the comment “increasingly clear signs that the youth customer is seeing pressures on their discretionary spending levels” that disturbed investors and drove the sell off yesterday, despite all the estimates of gains in sales and earnings expected by June 30.
The company told the ASX that it is looking for an underlying EBIT of $39 million to $41 million, which compares to $32.6 million 2021-22 and “margins are expected to moderately exceed 61.1% delivered in 2021-22.”
UNI said group sales are expected to be in the range of $258 million to $261 million by June 30 this year – a record and topping the $208 million reported in 2021-22.
Sales through the Universal Store chain are expected to be in the range of $238 million to $240 million compared with $208 million in FY22, and $211 million in FY21).
Underlying sales through CTC are expected to be 40 million to $42 million, which compares to $35 million last financial year (which includes a pre-acquisition period).
The Universal Store business “is on track to deliver record sales, new stores have performed well, and the business has successfully adjusted its’ offering to cater to the changing channel preferences of customers,” the company told the ASX.
The Perfect Stranger business “as a retail format is performing strongly and continues to demonstrate its strong potential for an economically attractive national roll out.”
The CTC business which was acquired on October 31 last year “has settled well into the Group. CTC will deliver record sales, solid earnings, and especially encouraging performance from the emerging Worship brand,” directors said.
The group said “margins and business unit inventory levels have been well managed against a backdrop of increased promotional discounting activity from peers and some evidence of overstocking in the market.”
“More recently, trading conditions observed throughout April and May to date have further tightened indicating that some customers are reducing their spending. The Group expects this subdued environment to continue for the balance of FY23 and into FY24 – another point that worried investors yesterday.
“We are comfortable with the current inventory position across the Group. Inventory at 30 June 2023 is expected to be higher than the prior year, primarily due to the CTC acquisition, incremental new store openings, and the higher inventory holding supported by the upgraded distribution centre.
The company said it will have a total of 95 physical store locations are expected by June 30 – comprising 77 Universal Store sites, 8 Perfect Stranger sites, and 10 THRILLS stores. Four new store openings, originally slated for June half are now expected to open in the September quarter.
