Homebase has revealed the dramatic extent of its restructure to date in its first earnings release since its disastrous ownership of Australian DIY giant Wesfarmers.
The private equity-owned KBB and home-improvement business said that returning to its design-led roots, which includes reintroducing kitchen showrooms to its portfolio, has helped it to make “significant progress” in its turnaround plans so far.
The business, which Hilco bought for £1 last spring, is 10 months into a three-year restructure.
Reporting financial results for the six months to end of December last year, Homebase said earnings before interest, tax and depreciation had narrowed to £33 million, 80% less than year before.
With exceptional items, including the profit from the sale of a freehold store and other property-related provisions, losses narrowed by almost 96% to £8.2m, while improved margins helped gross profit jump by a fifth during the period, though revenue fell slightly – down 3.5% to £497.8m.
Homebase said closing 47 loss-making stores and two distribution centres, reducing headcount from head office by almost 40%, and removing complexity from processes, had helped it to achieve the strong financial and operational performance.
In addition, it had responded to customer demand to bring back the ranges and product lines that Homebase had been famous for including in-store concessions.
The firm also credited the £95m asset-based lending facility from Wells Fargo Capital Finance for supporting it with working capital.
Damian McGloughlin, Homebase chief executive, said: “After the change in ownership last year, we put a clear plan in place to restructure the business, with a focus on cost management, better shopkeeping and bringing back the things our team and customers love most about Homebase.
“The benefits of the changes we have made are starting to come through and I am extremely grateful for the loyalty, energy and support we have received from our team members and suppliers.
“It is their hard work that has enabled us to put in place these stronger foundations.”
Despite its problems over the past two years, he said Homebase remained “one of the most recognisable retailers in the UK and Ireland”, adding that the progress made in reinvigorating the customer experience meant that the management team was “very optimistic about the future”.
To improve the in-store experience, the firm has invested in staff training, with more than 75% of the workforce trained to take customer orders.
Andy Coleman, Homebase chief financial officer, said: “Central to our turnaround plan was the need to reduce our cost base through a series of difficult but necessary measures and we have already removed £100m of fixed costs from the business.
“These changes, combined with our improved operational execution, are already bearing fruit.
“We are encouraged by the progress we are making on our turnaround plan and believe that we now have a stable platform in place to support future growth.”
GlobalData retail analyst Amy Higginbotham said: ‘In its first set of results since being taken over by Hilco back in May last year, Homebase has shown a glimmer of hope that it might actually be able to recover from the disaster of the Wesfarmers acquisition.”
But she cautioned that “the road to recovery is long”.
“Homebase will have to work hard to rebuild its loyal customer base and recover its reputation as a specialist for home improvement, which targets a female as well as male demographic, after Wesfarmers turned stores into hard DIY big boxes.
“Homebase’s strategy to return to its roots by reintroducing popular furniture ranges and soft furnishings, as well as providing an enhanced lighting and kitchen offer, is undoubtedly the right one, and will help the retailer widen its customer base once again.
“But Homebase must focus on changing consumer perceptions in order to become a considered retailer for products such as decorative accessories and furniture once again. A more thorough rebrand will likely be required to regain its customer base, and to differentiate itself from DIY players such as Wickes and B&Q.
“Homebase is using social media to showcase its new ranges and trend-led pieces in order to boost its design credentials, and though this is a good starting point, there is still much to be done.”