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Frasers’ Profits Soar, But Shops Tax Reform Remains Bone of Contention

New Frasers Group CEO Michael Murray picked up the call for the British government to overhaul costly business rates taxing shops for the right to occupy commercial property and typically amounting to as much as 50 percent of the location’s annual rent.

In a Nutshell: Frasers pointed to new stores, its Hugo Boss investment and a handful of acquisitions as some of the highlights for the year ended April 24. Taking over Missguided,  Studio Retail (SRL) and Danish sport retailer SportMaster will help the fashion company “unlock new e-commerce capabilities and access a wider customer base,” it added.

“It’s clear that our elevation strategy is working and we are building incredible momentum with new store openings, digital capabilities and deeper brand partnerships across all of our divisions,” Murray said.

Murray, who took over as CEO in April from future father-in-law Mike Ashley, reiterated the call for business rate reform.

“We have consistently criticised the archaic business rates regime and the need for reform,” Murray said, adding that Frasers faces “soaring construction and store fit out costs, making for an extremely challenging environment to open and operate physical stores.”

He believes “consumers will still flock to stores for great brands and experiences.” Compounding the challenges from inflation and supply chain disruption, retail also is “fighting against a fundamentally flawed business rates system which is yet to be addressed,” Murray said.

After the British Retail Consortium pushed for a rates cut in October, former chancellor and finance minister Rishi Sunak implemented a 50 percent trim valid for one year. In May, he pledged to cut taxes for businesses, but quit earlier this month and found himself in a runoff with Liz Truss to be the next Conservative Party leader after U.K. Prime Minister Boris Johnson resigned amid scandal.

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“If I become PM, I will deliver the radical set of reforms needed to unleash growth,” Sunak tweeted Thursday.

In August last year, Frasers chairman David Daly said the excessive and outmoded business rates system could force House of Fraser to close some locations in the absence of tax reform.

“We will continue to invest in the high street alongside our online and digital capabilities,” Daly said on Thursday, adding that the company continues to see acquisitions opportunities. Daly noted that in the second half of the just completed financial year, Frasers Group completed the purchase of land in Bitburg, Germany, where it plans to build a distribution center servicing stores and dot-com for mainland Europe.

Net Sales: For the year, revenues jumped 31 percent to 4.75 billion ($5.66 billion) from 3.63 billion ($4.32 billion). Excluding acquisitions and on a currency neutral basis, revenue rose by 31.2 percent, Frasers said.

Results do not include SRL, which was acquired during the year. Bob’s Stores and Eastern Mountain Sports are a discontinued operation.

By division, UK Sports Retail revenue rose 31.2 percent to 2.58 billion pounds ($3.08 billion), aided by the strong reopening of stores following lockdown for Covid-19. Premium lifestyle revenue increased 43.6 percent to 1.06 billion pounds ($1.26 billion), mostly due to new Flannels stores, continued growth online and stores reopening after lockdowns. European Retail revenue was up 28.4 percent to 790.2 million pounds ($942.3 million), largely on strong growth in Ireland and stores restarting operations after a pandemic pause. Revenue in the Rest of World Retail group slipped 1.6 percent to 150.3 million pounds ($179.2 million), while wholesale and licensing operations saw revenue increase 9.7 percent to 168.1 million pounds ($200.5 million).

Earnings: Profits for the year after taxes swung to the black at 297.3 million pounds ($354.5 million) against a loss of 78 million pounds ($93.0 million) in the year-ago period. Profits before taxes were 366.1 million pounds ($436.6 million) versus a profit of 8.5 million pounds ($10.1 million) in the year-ago period.

Despite the economic headwinds that include inflationary pressures, the company said current momentum gives it “confidence of achieving adjusted profit before tax of between 450 million pounds ($536.6 million) and 500 million pounds ($596.2 million) for the next financial year.

Murray said the “conservative” guidance reflects ongoing supply chain disruptions.

CEO’s Take: “We’ve got the right strategy, team and determination to keep driving our business from strength to strength,” Murray said.