Well-positioned retail sector investments are providing private equity firms with some performance bright spots amid tough economic conditions.
New Look, a European high-street fashion retailer owned by buyout groups Permira and Apax Partners, this morning revealed annual sales growth of around 15 percent and earnings of £218 million (€252 million; $358 million), up around 10 percent on the previous year.
The retailer, which the two buyout houses acquired in 2004 for €1.2 billion, has benefited from selling low-cost fashion into an environment in which consumers are looking to get the most from their money.
New Look: looking good
Other consumer brands in Permira’s portfolio – such as luxury labels Hugo Boss and Valentino and Spanish clothing retailer Cortefiel – will not be benefitting from the same “trading down” trend as New Look.
Hugo Boss and Valentino Fashion Group, for example, are well entrenched in the luxury space. In spite of this, however, they have only been moderately affected by the crisis. In the first quarter of this year Hugo Boss posted sales of €484 million, down only 5 percent on the same period for 2008.
Valentino chief Stefano Sassi recently told Italian newspaper Corriere della Sera that turnover and profitability for the group had dipped during the first quarter of the year, but that from the middle of April he has seen signs of recovery.
Permira’s Spanish fashion retail group Cortefiel, however, is understood to be experiencing tougher conditions amid falling consumer demand in the country.
Trading at Bridgepoint’s UK fashion retailer Fat Face – a premium brand bought by the private equity firm in 2007 for £540 million – is understood to be holding up well. A source close to the company said its July results are expected to be broadly in line with its figures for the previous year.
Fat Face: a premium brand holding steady
Elsewhere in the retail sector, private equity-backed businesses are profiting from the same “trading down” trend as New Look.
The Works, a discount bookshop, was bought last year by UK turnaround specialist Endless Capital. The business was making a loss of between £4 million and £5 million when Endless took over in May 2008, and is now operating at a profit. “By every metric we can think of, the business is performing well,” said Endless managing director Del Huse in an interview.
Endless recently acquired another retailer British Bookshops and Stationers, which it will hope can benefit from the same trend.
Last month Alliance Boots, bought in Europe’s largest ever leveraged buyout in May 2007 by Kohlberg Kravis Roberts, bucked the widespread economic gloom by posting a positive set of results. The drug store chain and pharmaceutical group reported a 15.5 percent rise in total revenue to £20.5 billion for the twelve months to April 2009.