Daunt confident of Waterstones sale after pre-tax profit jump

Waterstones’ managing director James Daunt has said he is confident the bookselling chain will find a buyer, with "quite a few people interested in it", after posting its latest set of financial results showing the business has grown its pre-tax profit by 80%. However, he told The Bookseller the sale process was in its “early stages”, pouring water on the suggestion any sale was likely to happen “imminently”.

He was speaking after Waterstones’ latest set of accounts filed on Companies House revealed sales remained relatively stable at the retailer a year on from the bookseller getting back into the black for the first time under its current ownership. Sales stood at £403.8m in the 52 weeks to 29th April 2017, down 1.3% (2016: £409.1m). Pre-tax profit meanwhile was up 80% to £18m (2016: £9.9m), and operating profit jumped 28% to £26.6m (2016:20.8m), although profit after tax fell to £16.1m, an 8.5% fall from £17.6m a year earlier. The accounts include the UK stores and outlets in Ireland, Holland and Belgium.

Daunt attributed the lower sales in the period to a handful of profitable shops he was forced to close after landlord negotiations, such as the Oxford Street West and Wimbledon branches. The jump in operating profit was achieved through more efficient running of the overall business, he said.

“In all 2016 was a good year. We had some things going against us in terms of having to close quite a few profitable shops. But things are stable on the top line, and we are definitely better at running the business. We have definitely turned a corner.

“Operating profit is getting towards £30m and that is a nice place to be. We are not a desperately glamorous business, but if you run bookshops well and sensibly and stick to the detail, you should be able to run them profitably.

“We have increased our staffing levels because we have hired more baristas as we have taken back more coffee shops concessions and turned them into Café Ws. Our bookselling staffing levels are where they should be, I think.”

The accounts show capital investment in the business had grown from a year previously, to £9.6m compared with £9m a year before. The company will continue to invest around £9m a year in improvements, Daunt said, focussing on the online operation in 2018 and further store refurbishments.

“The website should reflect Waterstones in terms of its bookselling ethos,” he said. “At the moment we do not do that very well. We are improving more and more in what we offer to customers and how we speak to them…We have a modest online presence, it is just about our biggest store, but only just bigger than (our flagship) Piccadilly (store).

“I think around the £9m a year mark is what we should be investing and we are now generating that and more in profit, so we can invest in that. We will also continue to refit shops with that investment.”

In October it was reported that Waterstones’ Russian owner Alexander Mamut had put the business up for sale with a price tag of £250m, with the deal being handled by corporate financiers N M Rothschild.

While Daunt said earlier this week the sale process had resumed after Christmas, he dismissed the suggestion a deal was imminent.

“Selling a business is a complicated process. The owner agrees to put the business up for sale. Then there is a period of due diligence, where potential buyers assess whether Waterstones is what it appears to be. Then there has to be an agreement drawn up. That all takes quite a lot of time and we are in the relatively early stages of that whole process. But I hope it is done quickly.”

He told The Bookseller “the most logical” buyer for the business would be a private equity firm and the likelihood of Waterstones being sold “to a trade buyer” such as Amazon or W H Smith was “nonsense”. When asked if he was confident the business would find a buyer, Daunt said: “I would have thought so. We are looking at a solid set of accounts.”

He added: "It’s no secret that it is for sale and it’s no secret that quite a few people are interested in it."

Earlier this week he also expressed a desire to continue his seven-year-stint at the helm of the business after it has been sold. "Obviously, I am here as long as Mamut wants me and as long as the new owner wants me,” he said.

In the period the accounts relate to Waterstones opened four shops but closed five, bringing the overall number in the estate to 274. Daunt said in the year since the account were filed , sales had been "more or less"stable", with continued improvement in operating profit.

The company opened five shops in the run up to Christmas 2017, but said December sales had been "slightly" down year-on-year, blamed on the bad weather.