But P4 “will be another profitable quarter” with around £300 million of profit improvement and cost savings having now been realised, in line with the FY23 target set under the firm’s Driving Change

It said it expects its earnings to be at the bottom end of its previous guidance range. It now expects H2 earnings before interest and tax (EBIT) to be closer to the minimum £40 million level than the maximum of £60 million it had predicted. That said, the adjusted EBIT figure will be up more than 100% YoY, reflecting “material improvements to core profitability and strong inventory management”. 

The adjusted gross margin will be up around 150bps YoY for H2 as a whole (against guidance that it would be up around 200bps), driven primarily by lower freight and duty costs, but “partially offset by tactical investment in promotional activity to prioritise stock reduction in a challenging trading environment”.

CEO José Antonio Ramos Calamonte said the company has delivered on its Driving Change agenda and “is a leaner and more resilient business 12 months after its launch” as a result.

In the P3 trading statement, he’d focused on “the challenging position we were in [when we had] entered FY23: we had more stock than we’d like, our buying processes were too deep and too slow, we lacked profitability and we had tension in our balance sheet with earnings-based covenants on our debt”.

For P4 23, it addressed many of these issues, reducing inventory (via markdowns) but also boosting order profitability, while its “refreshed commercial model is performing well and our Test & React pilot has produced extremely positive results that we will scale up over the coming months”. Test & React product moves from initial design to available onsite in less than three weeks.

It remains on track to return stock to pre-Covid levels by the end of FY24 (reducing stock below £600 million), which will importantly continue to drive down its net debt. But markdowns will continue in the short term as it continues to clear its oldest stock.

Weaker sales but progress made

So what exactly happened on the sales front in recent months? The company said that in many of its markets (but most notably the UK), “the hot weather drove a strong June and a wet July and August produced a weaker sales result”. 

While the patchy period “broadly netted out” to deliver sales and EBIT in line with guidance, the phasing of sales impacted year-end cashflow. 

But the company said its “newest, high fashion product is selling very well, with a 50% increase in four-week sell-through since the start of the year”. 

However, due to its reduced stock intake and seasonally low newness in July and August, “new stock is a low proportion of sales and the strong performance on new product has therefore not been enough to offset the challenging discount season for clearance product”. 

That said, in September, the proportion of its stock which is less than a month old will have almost doubled from the levels seen in July.

As mentioned, the Test & React programme has been key here and it said its pilot for the strategy was “a resounding success” for its own-brands. It has now launched around 500 Test & React options, reducing lead times to about two weeks and with close to two-thirds of each product run selling through in the first seven days. 

When it comes to partner brands, the technology and team are now in place to enable it to scale up the number of brands operating on the Partner Fulfils model in the next 12 months, providing “additional width and depth to its assortment” while reducing inventory risk and enabling it to “better curate our local product offering in international markets”.

It believes the initiatives “will be transformative for our customer proposition and for our ability to generate profit and cash”.

The company will report its full results for the FY23 year in late October.