Arcadia takes margin hit as it shoulders VAT rise

Sir Philip Green’s Arcadia, which controls chains ranging from Topshop to Dorothy Perkins, shouldered £53m of cost resulting from this year’s VAT rise rather than pass it on to shoppers.

The figure emerged in Arcadia’s full-year results, largely accounting for a margin decline of 1.8 percentage points.

VAT rose to 20% in January, forcing retailers to decide between absorbing the increase – even as their other costs were rising – or shifting the burden on to consumers already financially squeezed.

Harsh times for the consumer contributed to an £80.1m plunge in full-year group pre-tax profit to £133.1m on sales of £2.68bn, but Green said he was “reasonably” pleased with performance overall.

Online sales climbed 27% in the year to August 28, and were ahead 21% in the first 12 weeks of the current year. However, underlying retail like-for-likes dropped 4.3% last year. Total UK VAT-inclusive like-for-likes were down 1.8% in the year, but that has worsened since year end to a 4.4% decline.

However, the billionaire tycoon pointed to Arcadia’s cash generation, which fell last year but was still almost £300m, as a key performance measure. “Everyone knows it’s a challenging market,” he said. “When you consider everything the out-turn was OK.”

He flagged strong online growth, the strength of his young fashion brands such as Topshop and Miss Selfridge, and international growth as high points.

Between now and mid-2014 480 Arcadia leases are coming up for renewal, and Green expects to shut about 50% – between 200 and 300  – of these stores. Arcadia has 2,500 company-owned stores overall.

The exits come as Green consolidates Arcadia brands together in stores following its merger with his Bhs business in 2009.

The retailer – which also operates the Evans and Burton businesses – has been expanding overseas. Last year 70 franchised shops opened, bringing the total number of such outlets to 600 in 36 countries, and international expansion has continued since the year-end.

A Topshop and Topman store opened in Chicago in September, following a debut in New York two years ago, and work is under way on a Las Vegas shop.

Green said he hopes to open a flagship in China next year and the first standalone Topshop in Australia is scheduled to debut next month.

Green acknowledged retail conditions in the UK are still difficult. He said: “It remains very competitive, it remains very challenging.”