The Bookseller.com

12th October 2008

Sales up, profit flat at Waterstone's

01.07.08 Philip Jones and Graeme Neill

Waterstone's operating profit was flat in its latest financial year after spending £1.2m on its new distribution hub, according to full-year results put out by its parent HMV Group. However Waterstone's managing director Gerry Johnson said the company's underlying profits had "moved on nicely year-on-year" after taking out the costs of the hub.

The results, which were largely revealed in the group's trading statement in May, confirm that the bookseller recorded sales of £564.3m in the year to 26th April, representing year-on-year growth of 5% and like-for-like growth of 3.3%. Last year it reported a drop in full-year like-for-like sales of 4.1%.

Johnson told The Bookseller: "We are really pleased - they are a good set of financial results. I think the story behind it is that Waterstone's has been focusing on its core bookselling heritage. We have done really good work with the promotion of new titles and authors and locally we have held events with authors who aren't as well known nationally."

Waterstone's operating profit was flat at £16.3m, representing 2.9% of sales, and down marginally on the previous year. The profit comes after the £1.2m start-up costs of the book hub distribution centre, but does not include the £4.6m incurred in connection with the continuing review of the combined Waterstone's store portfolio, following the acquisition of Ottakar's. HMV also said that "better targeted discounting" contributed to an underlying gross margin rate improvement of 30 basis points, although the total gross margin rate was down 10 basis points due to Harry Potter and the Deathly Hallows. The business revealed that the new Harry Potter had had a 0.9% impact on its sales.

Johnson said: "We have swallowed the costs of changing our supply chain and because we hit internal targets, there have been large bonus payments. Our underlying profits have moved on nicely year-on-year." Johnson confirmed that its new distribution hub was now due to be "phased" in and not completed until the end of the new financial year (April 2009).

Waterstones.com grew by 146% during the period, driven in part by the success of Waterstone's multi-channel loyalty card, which launched in September 2007, and has attracted 1.5m registered members to date.

HMV added: "The book market continues to be highly competitive and promotional, which resulted in some Waterstone's market share dilution, although this can be mostly attributed to the closure of stores as part of the strategic initiative to rationalise dual catchments." Over the period, 11 stores closed in the period, while one new store was opened. At the end of the period, Waterstone’s total square footage had been reduced by 6.7% out of a three-year target of 10% by April 2010.

Johnson said: "From our perspective we will have to manage our business very carefully in the year ahead but that is what we would be doing anyway. But we are still investing in the business, opening stores and funding a new warehouse. We are managing everything carefully."

HMV Group saw an increase in profit before tax from continuing operations of £11.4m to £56.6m, on revenue which grew by 11.3% to £1,874.9m.

Retail Financial waterstone's HMV Home Philip Jones and Graeme Neill

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