UK Edition
House of Fraser gets first cash injection from Chinese owner as losses widen
House of Fraser has received its first cash injection from its Chinese owner since Sanpower bought the business three years ago as the department store chain reported a loss amid soaring investment costs.
Sanpower's decision to pump a total £25m into the business comes as the retailer's new chief executive, Alex Williamson, who joined from Goodwood just seven weeks ago, said that House of Fraser had been "starved of investment".
The department store's finance chief Colin Elliot admitted that the retailer had this month asked its Chinese parent for £15m to provide "financial headroom" in the run-up to the crucial trading period after the ongoing turnaround efforts had hit sales and profits. Mr Elliott stressed that House of Fraser was not in danger of breaching any covenants but said that the extra money would ensure there was enough cashflow for stock orders.
The financial commitment from Sanpower came as House of Fraser reported its like-for-like sales slumped by 5.2pc in the six months to July 29 while total sales dropped by 5pc to £545.8m as the group was affected by the overhaul of its website during the spring.
While online shoppers have been a major growth driver for retailers, House of Fraser's online sales were down 9.8pc during the period with the department store saying its website relaunch had made it "invisible" to Google's search engine during April and May.
As a result of its heavy investment in restructuring its IT systems, overhauling its warehouse and scrapping some underperforming fashion brands, House of Fraser's first-half losses widened to £8.6m before interest, tax, depreciation and amortisation from £0.9m the year before.
"In a period where economic pressures are heavily impacting consumers’ willingness to spend and store sales in particular are suffering, House of Fraser has not been able to rely on online growth to prop up its first-half performance," said Sofie Willmott, retail analyst at Global Data.
As part of its turnaround efforts House of Fraser has embarked on an £18m investment in its distribution centre, of which £10m will be also provided by Sanpower.
Earlier this year the department store axed four of its own flagging womenswear brands and around 40 third-party brands in favour of giving more shop space to its best-sellers, such as Biba, and new housebrand Issa. The retailer ran heavy discounts on its culled brands to clear stock, which also weighed on the company's profitability.
Despite the disruption from the transformation plan, House of Fraser's new boss said there was "much to be optimistic about" as there was a good response from customers to its new relaunched fashion ranges and the group's overhauled website and online systems would be ready in time for peak Black Friday and Christmas trading.
Mr Williamson has joined the business after a string of departures, including that of predecessor Nigel Oddy, amid intense speculation that House of Fraser's Chinese owner had not been honouring its pledge to invest in the business.
When Sanpower bought an 89pc stake in House of Fraser in 2014 it was widely reported that the Chinese conglomerate had pledged £75m of available funding to the business that failed to materialise.
This figure has subsequently been denied by by House of Fraser's chairman Frank Slevin, who said it was a misunderstanding. Nonetheless the retailer has until now had to rely on its own cost savings and a £250m bond refinancing to afford a £100m investment in its new warehouse, IT systems and head office costs.
Mr Williamson said: "My observations after a few weeks are that since Sanpower acquired the business in 2014 the primary focus has been on stabilising an enterprise that had been starved of investment for many years."
Mr Williamson's plans for House of Fraser will focus on improving the level of service and experiences inside the department stores by leaning heavily on his experience running Goodwood Revival and the Festival of Speed.
However credit ratings firm Moody's sounded a note of caution and said that the chain "remains highly exposed to performance over the crucial Christmas trading period and we believe profitability growth in 2018 will be crucial if the company is to successfully refinance its capital structure".