Shop Direct offers bleak outlook despite profits soaring by 182%

Growing popularity of online sales boosts earnings at the Littlewoods owner
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The Independent Online

Shop Direct has warned that its profit and sales growth will slow this financial year because of uncertain economic conditions and a tightening of the home shopping group's credit lending to its customers.

Its cautious comment came as the owner of the Littlewoods brand reported a 182 per cent rise in underlying earnings, or Ebitda, to £96m for the year to 30 April, on sales up by 7.4 per cent to £1.7bn. It did not disclose a pre-tax profit figure.

Steve Makin, finance director of Shop Direct, which is owned by the Barclay brothers, said: "We are expecting more modest growth this year. This is particularly driven by the economic conditions, but also the actions we have taken regarding our credit acceptance criteria. We have taken a more cautious approach to lending in the current environment." The "overwhelming majority" of Shop Direct's customers use its credit offers, he said.

His warning on 2010 follows downbeat forecasts made by some of retail's biggest names over the past week. Andrew Higginson, chief executive of retailing services at Tesco, said: "I think the market will be flat at best at Christmas, and part of that will be deflation."

Shop Direct, the UK's largest online clothing retailer, said that trading had slowed over the past 20 weeks and was up just 1 per cent on the same period last year.

On Christmas trading, Mr Makin, a former chief executive of Umbro, said: "At this stage, we would say, it will probably be flat to a modest level of growth."

Shop Direct said it would launch an advertising blitz this Christmas on television, in the media and online from late October. The television campaign is expected to feature the presenters Fearne Cotton and Holly Willoughby, who were involved in the rebranding of its Littlewoods Direct website as in the summer. Very targets shoppers aged between 25 and 45, particularly young families.

Since its year end, Shop Direct, which bought the Woolworths brands in February, said that online sales had grown by 29 per cent – a faster rate than its other catalogue and telephone ordering businesses – to account for 56 per cent of its total sales.

Mr Makin said: "The move online has helped profitability. Recruiting customers is more effective through the online channel." He added that it had grown its gross margins and managed its stock better, as well as improving product availability and customer service. However, the shift in its business focus to online resulted in job losses at its head office in Speke, Liverpool, after a restructuring.

Mr Makin said that he was "pleased" with the performance of "We have had more than four million visits on the website since we launched in July." He added that the current best-seller on Woolworths are the Go Go Pet Hamster toys.