Waterstones managing director James Daunt has said it will take two years to transform the chain, after accounts submitted to Companies House showed the extent of the decline in the business before it was sold to Russian oligarch Alexander Mamut and the costs of remodeling the chain since.
In the 52 weeks to 28th April 2012, Waterstones' total sales decreased by 14% from £477.4m to £410.4m, with like-for-like sales down 11.1%. The company recorded an operating loss before exceptional items of £25.4m, down from an operating profit of £10.4m the year earlier. The company described the period as "transitional"—Waterstones was sold two months into the financial year at the end of June 2011—with the performance "impacted by funding constraints as HMV Group completed a financial restructuring", as well as "the disruption of a change of ownership".
Daunt described the results as a "rather unappealing set", but said they were a "historic document" that bore little relation to the business going forward. Daunt said that nine months on Waterstones was "a more profitable business", and pointed to the chain's successful Christmas when sales rose thanks in part to strong performances from its refurbished stores.
Daunt told The Bookseller: "In a sense [the results] is so much what I inherited. Half the year was with them [HMV]. I don't know if you remember what kind of state it was in when I arrived—it was truly shocking. We confronted difficult things. We have addressed an enormous amount of the neglect and lack of investment that has gone on."
The results show operating exceptional costs were down to £8.6m where they totalled £28m in 2011, with costs in the period including £2.1m in store closures; £2.2m in impairment of property, plant and equipment; £0.6m in head office restructuring and redundancy costs; and £3.7m in stock provisions. In the year to April 2012, Waterstones closed six stores and opened one. Despite the reduced exceptional costs, Waterstones' pretax loss was £37m compared with £20.6m a year earlier. The company remained cash positive however, generating £13m in cash, and ending the year with £20m in the bank.
The company said the sales performance reflected a "difficult high street book market, with strong competition from online retailers". The company however pointed to non-book product, with sales of related products growing by 1.7% year-on-year to 8.2% of the overall business.
The accounts state that a medium-term strategic plan has been agreed, "which includes substantial capital investment to reinvigorate the shops, such that they are places where people who are interested in books can go to browse, that encourage new readers to expand horizons and that are home to booksellers who are passionate about the books that they sell". The investment will be combined with "active management of operating costs across the business", which recognised "the continuing digitisation of the market", the company said. The chain highlighted its Amazon Kindle deal but gave no further financial details.
Daunt said that the refurbishment plan would continue to disrupt trading, and it could take a further two years to fully transform the chain. The business completed 40 refurbishments before Christmas, and has 60 planned for 2013. "Every time you [refurbish a store] you really mess the shop up. It has a real impact on your trade, but you screw that shop up for two weeks."
He added: "The business side needs to generate £30-40m worth of cash if it is to be a sustainable business . . . We should be able to do that. We have had disruption this year, we will carry on the route of the refurbishments this year. When I said we will be judged on this Christmas, I meant it would be the point at which we know whether the idea this might work—effectively our customers were going to vote and tell us.
"I think we are now at a phase where we are looking at two years away, because we are going to spend two years totally transforming the business and hopefully becoming a bigger and better business."
Waterstones this week completed the transition of its head office from Brentford to its Piccadilly shop in central London.
A fuller report on Waterstones will be published in The Bookseller this week.