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Is Clarks on the edge?

In the short term the answer to that question is clearly “no”. But the latest results from Clarks, the shoe empire founded and still headquartered in Street were not great. That question might get a very different answer in the next handful of years.

The accounts, which have just been filed, showed sales in the 52 weeks to February 2019 fell from £1.53bn to £1.46bn.

That does not sound to drastic but it is the lowest it has been since 2015. The problem for Clarks is that their margins are wafer thin. They reported a profit before tax of £19.7m last year but this year that has turned into a substantial loss of £84.4m.

In his report the Chairman Thomas O’Neill noted “the retail environment remains extremely challenging in two of The Groups key markets, with significant footfall declines….in both the US and the UK.”

Meanwhile Stella David, the interim CEO, suggested “the external environment is expected to remain extremely challenging in 2019/20.” But equally she insists that she “firmly believe(s) that the group can be put on a sustainable basis”

But the real cause for concern is the balance sheet position. The group has net assets of £469m as at 2nd February 2019. If losses continue to rise unabated, remember this year it was £84.4m, the group will basically run out of assets in the next 4/5 years. This is why the turnaround plan has to succeed.

In the short term the company is looking to close retail outlets. Finance Director Paul Kenyon notes “It is difficult to accurately predict the actual number of store closures, given the increased willingness of landlords to engage in negotiation regarding rent levels and lease renewal….”

These are rough times to be a High Street retailer.

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