Choices UK has issued a heavy profit warning due to disappointing trading over the Easter period.
Choices saw a year of immense changes in 2006. Apart from its name changing from Home Entertainment to Choices, a new chief executive was appointed, and 25 loss-making stores were closed. Furthermore, the retailer’s product ranges were rationalized and refocused on games, music & video while an updated website also helped to boost the retailer’s smaller but more profitable direct to home business.
And there were signs that these changes were moving the retailer into the black, despite tough trading during the summer’s World Cup. This much improved performance continued into 2007, only to have stalled over the recent Easter period. The warm weather was blamed for this, with particular regard to Choices’ rental business.
Worryingly for Choices, this profit warning has come at a time when many troubled entertainment retailers have benefited from the PS3 launch in March. Although Choices noted that its launch had performed ‘in line with management’s expectations’, if the PS3 had not been launched then Choices could have been in further trouble.
The retailer also stated that it was assessing its strategic options and that it will update the market in due course. It seems that the retailer’s steps towards a return to profitability have not been large enough to date, and further actions must be taken.
This may mean a more far reaching cull of underperforming stores which would take its store estate to below 150 or even the return of the group to private ownership. This would allow the retailer to make more drastic decisions that, as a public company, are at present unpalatable. In the meantime, the retailer will likely continue to close loss-making stores which will stem losses and allow management to focus on its smaller direct to home business which has much stronger growth prospects.
Source: Verdict Research
