Newly-listed re­tailer tar­gets five-fold in­crease in sales

Fast fash­ion wom­enswear seller Quiz has joined the stock mar­ket ahead of a big growth push

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Given a UK con­sumer slow­down, the in­ex­orable chan­nel shift to the web and cut-throat com­pe­ti­tion amongst cloth­ing re­tail­ers, in­vest­ing in a ‘fast fash­ion’ wom­enswear out­fit en­gaged in a phys­i­cal store roll-out might not ap­peal to ev­ery in­vestor.

So how has Quiz (QUIZ:AIM) man­aged to cap­ture in­vestors’ in­ter­est and suc­cess­fully joined the stock mar­ket (July 2017) de­spite the dif­fi­cult back­drop for the retail sec­tor? To an­swer this ques­tion, let’s take a closer look at the busi­ness.

Glas­gow-head­quar­tered Quiz is among a new breed of ul­tra-fast fash­ion brands dis­rupt­ing the retail mar­ket place. Think ASOS (ASC:AIM) and Boohoo.com (BOO:AIM) rather than Marks & Spencer (MKS) or Bon­marche (BON).

Fast fash­ion is es­sen­tially re­tail­ers con­stantly pro­duc­ing new de­signs to feed a hungry mar­ket for wom­enswear. It in­volves a greater num­ber of or­ders be­ing placed at the last minute, typ­i­cally tak­ing in­spi­ra­tion from what celebri­ties have been wear­ing.

Quiz spe­cialises in oc­ca­sion wear and dressy ca­sual wear that helps fe­males, mainly in the 16-35 year old age bracket, stand out from the crowd.

Dis­tinc­tive, glam­orous own­brand lines are grow­ing rapidly. And just like fast-fash­ion win­ners ASOS and Boohoo, Quiz boasts a bur­geon­ing so­cial me­dia fol­low­ing and is suc­cess­fully lever­ag­ing celebrity and blog­ger col­lab­o­ra­tions to raise brand aware­ness and boost sales.

PRE­VI­OUS STRUG­GLES

The busi­ness went into ad­min­is­tra­tion in 2009 after strug­gling with high rental costs and dif­fi­cult trad­ing con­di­tions. The Ramzan fam­ily (which in­cludes the founder and var­i­ous di­rec­tors) im­me­di­ately bought back the ma­jor­ity of the busi­ness. Eight years later Quiz is in good health.

‘We see our­selves as an omni-chan­nel ver­sion of the on­line pure plays that are out there,’ says chief com­mer­cial of­fi­cer Sheraz Ramzan.

‘We tick all the boxes of so­cial me­dia, fast fash­ion and value. We have a very strong oc­ca­sion wear of­fer – proms, wed­dings and nights out – and a strong ca­sual dress of­fer. And the Quiz brand has got wide ap­peal. Go into our stores and you’ll see three gen­er­a­tions of women shop­ping with us.’

Quiz con­stantly de­vel­ops its own prod­uct lines, en­sur­ing the lat­est glam­orous looks are avail­able at value prices. To­day, Quiz trades in 300-plus out­lets glob­ally – in­clud­ing stand­alone stores, con­ces­sions with the likes of Deben­hams (DEB) and House of Fraser, fran­chise stores, whole­sale part­ners and in­ter­na­tional on­line part­ners in­clud­ing Za­lando.

On­line only ac­counted for 13% of last fi­nan­cial year’s sales but there is rapid growth in this chan­nel.

SPEND­ING MORE MONEY ON MAR­KET­ING

July’s stock mar­ket list­ing raked in £9.4m of new money after fees which will help Quiz grow its mar­ket po­si­tion at home and over­seas. It plans to sig­nif­i­cantly in­crease mar­ket­ing spend to help ac­cel­er­ate sales growth.

The growth po­ten­tial is ar­guably huge as Quiz’s share of the £7.3bn UK wom­enswear value cloth­ing sec­tor alone is still tiny.

The £220m cap has sig­nif­i­cant on­line po­ten­tial, ris­ing brand aware­ness, helped by the UK store pres­ence and in­creas­ing on­line ac­tiv­ity, as well as the well-in­vested in­fra­struc­ture to sup­port planned growth.

Phys­i­cal stores are im­por­tant to Quiz’s omni-chan­nel model; it cur­rently trades from 67 stand­alone UK stores and there’s long term po­ten­tial for a dis­ci­plined roll­out to 110-120 lo­ca­tions.

Fur­ther­more, it now has a flex­i­ble store es­tate cen­tred on short leases, which lim­its ex­po­sure to costly up­ward rent re­views.

Sheraz Ramzan says: ‘The stores are an im­por­tant part of the strat­egy but the main driv­ers are on­line and in­ter­na­tional.’ The lat­ter chan­nels are presently gen­er­at­ing com­pound an­nual growth rates north of 40%.

TEST AND RE­PEAT MODEL

Quiz has a durable com­pet­i­tive ad­van­tage over many of its peers thanks to the rapid speed by which it can pro­duce items to meet the lat­est fash­ion trends.

Its test and re­peat model is sim­i­lar to BooHoo’s in that both com­pa­nies do a small amount of or­ders to gauge cus­tomer de­mand and they only pro­ceed with large or­ders for the most suc­cess­ful items.

This helps to limit the risk of hav­ing goods that are sud­denly out of fash­ion and avoid hav­ing lots of un­wanted stock that has to be sold at a dis­count, thus hurt­ing profit mar­gins.

Quiz achieves 62.7% gross mar­gin and 9.1% EBIT (earn­ings be­fore in­ter­est and tax) mar­gin, ac­cord­ing to stock­bro­ker Pan­mure which has an­a­lysed a range of re­tail­ers’ lat­est re­ported fi­nan­cial re­sults.

In com­par­i­son, on­line ri­val ASOS has 50% gross mar­gin and 4.4% EBIT mar­gin; and phys­i­cal store ri­val New Look has 51.3% gross mar­gin and 5.3% EBIT mar­gin.

FU­TURE DIV­I­DEND PAYER

Quiz is cash gen­er­a­tive with an ungeared bal­ance sheet which not only sup­ports growth am­bi­tions but also pro­vides pro­tec­tion should trad­ing be­come tougher.

The com­pany’s shares may in­ter­est in­come and growth in­vestors alike as pro­gres­sive div­i­dends are on the hori­zon.

‘We’ve al­ways been debt averse over the years,’ says Sheraz Ramzan. ‘We’ve al­ways wanted to be a lean, fast-mov­ing com­pany that is flex­i­ble in ev­ery area.’

TAR­GET­ING FIVE-FOLD IN­CREASE IN SALES

The com­pany has out­lined an ini­tial am­bi­tion to build a £500m+ rev­enue brand in the medium term and a global omni-chan­nel pres­ence. To put that in con­text, Quiz gen­er­ated £89.8m sales in the year to 31 March 2017.

Pan­mure Gor­don an­a­lyst Peter Smed­ley fore­casts sales to hit £116.4m in the year to March 2018 and £150.5m in the year after. That trans­lates into pre­tax profit of £10.3m in 2018 and £12.6m in 2019.

The shares at 178p cur­rently trade on 27.8 times fore­cast earn­ings for the cur­rent fi­nan­cial year. That’s a high rat­ing to re­flect its fast growth po­ten­tial but nowhere near the 70.5 PE (price to earn­ings) ra­tio for BooHoo and 78.6 PE ra­tio for ASOS.

Source: Pan­mure Gor­don/QUIZ

QUIZ’s prod­uct de­vel­op­ment cy­cle and fast-fash­ion sup­ply chain model

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