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More House of Fraser Stores Could Close Over Rent Disputes

Frasers Group has reportedly warned landlords that it’s prepared to close stores if it can’t get a break on onerous leases.

Media reports in the U.K. said the country’s largest sporting-goods retailer is pushing for rents to change to sales-based agreements from traditional fixed amounts. The firm already closed five House of Fraser stores, leaving  48 in operation. BBC Breakfast on Thursday said more closures could not be ruled out, citing Chris Wootton, Fraser Group’s finance director.

News of the landlord dispute over rent surfaced on Thursday when the company disclosed preliminary results for year ended April 26. Frasers Direct reported a 12.9 percent decline in after-tax profits to 101 million pounds ($132.8 million), or 16.2 pence ($0.21) per basic share. Totals revenue rose 6.9 percent to 3.96 billion pounds ($5.20 billion).

“The group now intends to invest in excess of 100 million [pounds, or $131.4 million] in its digital elevation strategy. With a particular focus on Flannels and an enhanced customer experience, this investment will be integral in supporting the continued growth of our online channels. This commitment will support the group’s wider ongoing elevation strategy,” said CEO Mike Ashley.

Flannels Flagship Oxford Street
The Flannels flagship store on Oxford Street. House of Fraser

Designer chain Flannels, part of the group’s premium luxury division, which includes House of Fraser, saw a 34.9 percent gain in revenue to 722 million pounds ($949.1 million), attributed to new stores and the acquisitions of Jack Wills and sofa.com. The core U.K. sports retail group, which includes its Sports Direct operation, posted a 6.9 percent increase in revenue to 2.20 billion pounds ($2.89 billion), mostly due to its acquisition of digital gaming business Game.

But it’s the department store business that’s still struggling and has been since the company, then known as Sports Direct, acquired House of Fraser out of bankruptcy in August 2018 for 90 million pounds ($118.3 million). The parent firm changed its name to Fraser Group a year after the acquisition.

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“We continue to make progress with the reorganization and elevation of the House of Fraser business. It remains a challenge but we are committed to offering a premium experience to our customers in an elevated environment,” said non-executive chairman David Daly.

Daly described fiscal year 2020 as the “most challenging year” in the company history. “The political uncertainty around Brexit had been with us for far too long and, just as we were feeling more confident of getting some clarity and stability, the Covid-19 crisis arrived which will continue to have an impact on the economy and our business beyond [fiscal year 2020],” he said.

While Frasers Group was on track to reach its EBITDA (earnings before interest, taxes, depreciation and amortization) goal at the end of February in the range of 5 percent to 15 percent for the year, the coronavirus crisis and subsequent retail shutdown upended that trajectory, Daly said. And while there is a semblance of normalcy at stores, even with social distancing restrictions, the future remains unknown.

“There is currently a risk of a second wave which could lead to reinstatement of lockdown restrictions and there will be economic consequences which we do not yet fully understand,” Daly said.

Looking ahead, the “Covid-19 impact has created uncertainty and we consider that it will be some time before the country and indeed the world recovers,” he said. “However, Frasers Group itself has always taken a long term approach to its strategy and this has helped us, and will continue to help us, through these unprecedented times.

“We believe our business is strong as is our balance sheet,” Daly concluded.