Waterstones cut its losses in its last financial year with managing director James Daunt describing it as year of “significant progress” and insisting that the business was edging towards profitability. It is the second consecutive year of reduced losses at Waterstones under Daunt, and includes the period when the chain was restructuring its store and head office staff with staff numbers reduced by 512 in the year to April 2014.
Sales during the period fell by 5.9% to £389.5m, with losses before exceptional items at £3.8m, compared with last year’s loss of £12.5m. Margin management and operational efficiency combined to help reduce the company’s cost base and working capital investment but altogether the retailer's loss after taxation amounted to £18.6m, down from 2013 when it stood at £26m. Nevertheless, the results will be welcomed within the trade as further evidence of improvement at the business.
Speaking about the recent results to The Bookseller, Daunt said: “They are not a comfortable set of accounts. It was a pretty difficult place Waterstones was in and it was only the prior year when saving it seemed rather improbable.The year we are looking at, we were making some progress but we still had some way to go.” In the year to end-April 2013 Waterstones cut it losses them from £42.9m to £26m, and Daunt said this trajectory of improved performance had been maintained into its current financial year. “We are approaching our end of year at the moment and the signs are really encouraging. There is a sense of optimism at Waterstones and although we are not at the end of April yet, the company is in a good position and I expect to be making a profit, give or take a couple of shops which might make a loss.”
Daunt said he was aiming for the company to have an ebitda (earnings before interest, taxes, depreciation and amortization) of between £25m and £30m, with Daunt expecting the figure to be £20m in the period up to end-April 2015. “That is an important yardstick for us where I would be expecting to say 'we are in a secure business heading towards the £30m mark' which is what we need to have without having to rely on Mr Mamut,” Daunt said. Russian oligarch Alexander Mamut bought the company from the HMV Group in May 2011 for £53m when it was widely rumoured to be under threat of collapse.
While sales have been falling at the retailer in the last two sets of accounts, Daunt said revenue was marginally down "if not flat” for the current year, boosted by a strong performance of non-book products, which were up by nearly a third. He revealed sales of kindle devices were “massively down” over Christmas, but would continue to be sold in the shops regardless. “It is important to say through our bookshops to our customers ‘we do not care how you read.’ The devices do not take up huge space in our shops, it is not working as hard as it used to be, but having them there remains important,” Daunt said.
Daunt also said he remained keen to develop its own e-book effort. Waterstones had entered into exclusive talks to buy Tesco’s e-book platform blinkbox Books but they were called off last month when no deal could be reached and the digital platform shut down. Daunt said Waterstones was still keen to sell e-books more effectively and owner Mamut was especially interested in a digital vs bricks and mortar proposition, but suggested there weren’t many other platforms available. “We do not sell e-books in a meaningful, sensible manner. We need to be able to deliver them and I would very much like to,” he said. “On the other hand, the number of platforms are very limited and now there is one less.”
The most recent Waterstones accounts also show staff numbers decreased by 512 from the year to April 2014, and Daunt said those numbers reflected 30% less staff in stores and 60-70% fewer people in head office. The period also takes in a wave of bookshop manager redundancies, when over 200 were let go. Operating exceptional costs totalled £6.9m, including £3.7m on organisational restructuring and £1.8m spent on store closures. During the period the company closed nine shops, resited three shops and two new shops were opened, resulting in a total estate of 276 shops, compared with 283 a year earlier.
“I would like to employ as many booksellers as possible, but we cannot afford it," Daunt said. "I am unapologetic about booksellers being busy, because I think it creates energy and pace and an atmosphere in a bookshop and make for a more interesting job.” However, he conceded “we do not pay them enough." Staff received a 6% bonus for hitting targets last year, and Daunt said the company was in line to hit targets again this year, at which point another bonus would be paid to staff. Daunt added that he had a “young staff” who “work hard” and that currently “morale is higher than it has ever been.”
During the year a new financing deal was agreed with its parent the Mamut owned A&NN Holdings increasing the amount owed to £133m, on which interest is payable. This helped the company generate £53m in cash from its operations, enabling it to pay off a £35m bank loan, and end the year with £21m of cash in the bank.