Profit down 8.4% at Waterstones in 2020 as pandemic hit business

Waterstones profits after tax fell 8.4% to £20.8m in the 12 months to 25th April 2020, but the retailer highlighted “another strong performance" by the company until the impacts of the Covid-19 pandemic began to be felt.

The chain added that despite the "significant adverse impact" of the pandemic, it was entering the 2021/22 financial year "in a strong position and well placed for a return to growth in both sales and profits". Stores have been performing “above base forecast” since the April 2021 reopening.

Its accounts, filed at Companies House this week, are later than normal because rules for when to file were changed to allow for the impact of the pandemic. They are the first full financial year results filed under the ownership of Elliott Advisors.

Waterstones said sales for the year to April 2020 were £376m, down 4.3% on £392.8m in 2019, but there was an operating profit of £32.6m, up from £29.7m the year before.

M.d. James Daunt told The Bookseller: "It was a good year and then it began to go a little bit wrong, I think, towards the back end of January." He said: "Initially it took a while to sort of get to grips with it, you’ve got all the PPE costs, and putting yourself effectively into sort of hibernation. I think we sort of did that, we certainly acted very quickly and that stood us in pretty good stead to take us through the year that then followed which has obviously been pretty frustrating."

He said central London is still "significantly impacted" with the store in Leadenhall in the City still closed. "That is partly because they are digging up the road outside the shop as well, but you know the City is a ghost town," he said. The store in Liverpool Street is also still closed with the furlough scheme being used across these stores "prudently and sensibly". "We’re a business that needs to keep everything very tightly controlled until we emerge from this," he said, but did note there were "positive signs otherwise" with strong book sales and online performing well.

"Lockdown favoured all the ways in which people mentally occupy themselves, in which books are obviously the primary one and our primary business, but also board games and toys," Daunt said. "We literally sold every single puzzle that we could get hold of which is fantastic and we are a major puzzle retailer and always have been."

"I think, frankly, if in March 2020 we’d have said in June 2021 this is what it’s going to look like we’d have taken that every single time," he said. "The reality is that there’s a retail spending boom going on. People are not spending it on hospitality, they’re not spending it on foreign travel, there’s money in people’s pockets and they’re spending it in shops and online. It is a really good time for booksellers and for publishers, we just have to hope through decent policies and the vaccination programme we’re able to stay open."

In its accounts the retailer reported: “The outbreak of Covid-19 during the financial year has had, and continues to have, a significant adverse impact on Waterstones. Under government direction the entire estate of shops was closed in mid-March 2020. The shops in Belgium and Holland reopened in April 2020, followed by the majority of the remaining shops in mid-June 2020.

“Footfall and sales continue to recover but remain depressed, notably in London and other metropolitan city centres. Subsequent mandated closures have also been implemented across the estate throughout the following financial year.”

However, it also said that demand for books “was strong immediately prior to the enforced closure of the shops” and that after the closures the online business performed strongly.

“The company successfully repurposed the distribution centre as on online fulfilment operation. Margins were lower due to shipping costs and the additional costs associated with social distancing measures within the distribution centre,” it said.

“Sales at Waterstones declined relative to last year. The period of enforced closure of all shops adversely impacted profitability as did the incremental costs associated with the implementation of safe working and trading environments. The business responded to these pressures with discipline and the overall impact on the company’s profitability has been substantially mitigated by early action to curtail costs. The support and hard work of employees in this challenging environment has been highly professional.”

The retailer said it benefited from the government’s Coronavirus Job Retention Scheme, as well as coronavirus business rates relief for the 2020/21 tax year. The company also applied for, and in some cases received, government grants in accordance with EU state aid rules.

A spokesperson told The Bookseller that this, along with “rigorous cost cutting” enabled Waterstones “to substantially mitigate the financial consequences of the period of enforced shop closures".

They said: “Since the period covered by these accounts, a further year has passed in which the same dynamics have been experienced. During the periods of enforced closure, tight control of costs aided by the government support measures and the welcome sharing by most of our landlords of the impacts of closures, have ensured the financial resilience of the company.”

The spokesperson added: “We thank our customers for their loyalty and our booksellers for the discipline and steadfast commitment they have shown throughout this period. It allows the company to enter the 2021/22 financial year in a strong position and well placed for a return to growth in both sales and profits compared to the 2019/20 financial year.”

Foyles, which operates seven bookshops in the UK, filed its results separately at Companies House. The retailer's sales increased to £22.7m from £22.6m the year before but it made a loss of £1.8m after taxation, compared to a £106,561 loss the year before.

The report notes that a financial covenant associated with £190m due to Elliott Funds may be breached in July 2021 and October 2021. It states Elliott will waive a breach in April and may follow suit in July and October if required.