Essential reading for retailers and suppliers in the home improvement market

Turnaround on track, says Homebase

Published: 17 April 2019 - Fiona Garcia
 

Home improvement and garden retailer appears on more solid footing, as it delivers 21.8% jump in gross profit and £100million cost savings, as turnaround programme is in full swing, with store closures, rent reductions and re-introduction of concessions and popular ranges.

This morning Homebase reported its first set of results since a CVA was approved last August, revealing that the “business has delivered a much stronger performance” in the last six months of 2018. A management restructure and turnaround programme has stemmed losses and delivered cost savings of around £100million. Operating losses for the six-month period fell 80% year on year, from -£187.3million in the last six months of 2017, to -£33.1million in July-December 2018.

Fixed costs were reduced through the closure of 47 stores, which were described as “significantly loss making” and by securing rent reductions on 70 additional branches. Headcount at the retailer’s head office was also cut by 38%. Proposing the CVA last August, Homebase forecast it would need to close around 42 stores, resulting in up to 1,500 redundancies. However, today’s results suggest the final figure is higher.

Meanwhile, in a move to streamline its distribution network, Homebase closed two of its six distribution centres, in turn; reflecting “the requirements of a smaller store estate and improved stock management” said the business.

Whilst turnover, at £497.million, is still marginally lower than the same six-month period the year before, Homebase is working to improve its customer offer and put back in popular elements of the business that Bunnings stripped out when it took over the estate in 2016.

Homebase said it has responded to “strong customer demand” by enhancing its kitchen and lighting offer, as well as reintroducing popular ranges, such as furniture and soft furnishings. When repositioning the Homebase kitchen business, Bunnings walked away from around £50million-worth of business, with then UK managing director PJ Davis telling DIY Week: “It was a big call,”. The Australian DIY chain also turned its back on a lucrative £100million soft furnishings business within Homebase and stripped out all concessions, including Habitat and Laura Ashley, in order to create its Warehouse format and core DIY proposition.

Since Bunnings sold the business to Hilco Capital last year for £1 and its CVA was approved by shareholders, Homebase has steadily reintroduced complementary in-store concessions, including partnerships with flooring specialist Tapi, bedding brand Silentnight, and Ponden Home, which supplies homeware, curtains, bedding and furniture.

Homebase CEO Damian McGloughlin said: “After the change in ownership last year, we put a clear plan in place to restructure the business, with a focus on cost management, better shop keeping and bringing back the things our team and customers love most about Homebase.

“The benefits of the changes we have made are starting to come through and I am extremely grateful for the loyalty, energy and support we have received from our team members and suppliers. It is their hard work that has enabled us to put in place these stronger foundations.

“Clearly, we are only 10 months into a three-year turnaround plan. Homebase remains one of the most recognisable retailers in the UK and Ireland, and the progress we have made in reinvigorating our customer experience means we are very optimistic about the future.”

Homebase CFA Andy Coleman added: “Central to our turnaround plan was the need to reduce our cost base through a series of difficult but necessary measures and we have already removed £100m of fixed costs from the business.

“These changes combined with our improved operational execution are already bearing fruit with EBITDA losses declining by nearly £140million in the second half of 2018. We are encouraged by the progress we are making on our turnaround plan and believe that we now have a stable platform in place to support future growth.”

In November,Homebase revealed it had secured an asset-based lending facility of up to £95million from Wells Fargo Capital Finance to support working capital requirements.

Other positive investments Homebase mas made to secure the future of the business, include a step-up in employee training, with the number of team members till trained more than doubling, and with more than three quarters of the team are now trained to take customer orders and able to mix paint.

Homebase added that it has laid the foundations to rebuild the business’ digital offer, with early initiatives generating a double-digit increase in traffic to the Homebase website.

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