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Waterstone's sees green shoots

28.06.07 Philip Jones

Waterstone's has seen a turnround in its business over the past eight weeks in what it described as an "improved book market". It follows a like-for-like sales dip over its full financial year and a 22% drop in operating profits, with Waterstone's sales down by £20m after the contribution from Ottakar's is negated.

In the eight weeks since the end of its financial year to 23rd June, the book chain saw sales rise by 0.6% on a like-for-like basis. Managing director Gerry Johnson told The Bookseller: "It has been a good start to the year. It is still early days but we are pleased with our performance and we should all feel reassured by the improved book market."

In its full-year ended 28th April 2007, the chain's like-for-like sales fell 4.1% in a total book market which grew by 2.1%. The results are in line with the trading update put out in May, when the business said that Waterstone's sales would be down 4.7% (not including Ottakar's). In its first year after buying rival chain Ottakar's, Waterstone's pushed sales up to £537.5m, from £418.7m a year earlier, representing actual growth of 28.4%.

Ottakar's contributed £138.8m of additional sales to the group, since its acquisition on 3rd July 2006, leaving Waterstone's with sales of £398.7m, a drop of £20m. Over the year, 18 stores were closed and six new stores opened, bringing the total portfolio to 323 at the year end, covering 1.9m square feet.

The chain's operating profit fell back to £16.3m, from £20.9m a year earlier. The group said the reduction was due to the "adverse sales performance combined with a reduction in gross margin of 60 basis points, offset by the contribution from Ottakar's". Operating costs were well controlled, the group said, with like-for-like costs down £2.6m (1.7%), offset in part by £2m of waterstones.com start-up losses.

Johnson added: "We have made great progress with our key strategic initiatives, the consolidation centre is on track for the first quarter of next year and the early results from the Children's and Related Product initiative are very positive. We are excited about the opportunity that HP7 brings and encouraged by the very strong publishing ahead of us."

Overall, HMV saw its full-year profits dive after £26.5m of exceptional items--£16.4m of which came from Waterstone's (£10.2m went on the Ottakar's integration).

HMV Group's sales reached £1,894.5m (up 3.8%), inclusive of a 3.5% fall in like-for-like sales. Profit before tax and exceptional items was £48.1m (2006: £98.2m), but after the exceptional costs profit before tax fell from £80.2m to £21.6m.

Simon Fox, chief executive, said: "The turnaround plan we announced in March is progressing well and we are on track. The benefits of our actions are beginning to come through and are reflected in the good start we have made to our new financial year." Like-for-like sales were up 3.8% in the eight weeks after its year-end, including an 8.8% increase in HMV UK & Ireland.

Fox gave a cautious assessment of the retailer's positive start to the new financial year: "A good start has been made to the new financial year, with positive like for like sales growth in HMV UK & Ireland and in Waterstone's, albeit reflecting softer comparables from a year ago when trading was adversely impacted by the World Cup. HMV UK has continued to increase its share of the music and DVD markets and is continuing to exploit a growing games market, while Waterstone's has benefited from a book market where the trends have improved on the final quarter of the last financial year."


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