Lush positioned for growth, despite full-year loss: analyst

Global beauty business Lush posted a £3.9 million (A$7.17 million) operating loss in the year to June 30, 2018, compared to an operating profit of £22.6 million ($41.54 million) the year prior.

The decline was due to the rising cost of goods, manufacturing, staff, rent and administrative costs, and a slowdown in the US market, which outpaced a 6.6 per cent increase in turnover on a constant currency basis to £524.4 million ($963.9 million) in FY18.

This reflects a 4.4 per cent in like-for-like sales and 9.6 per cent increase in online sales, compared to the previous corresponding period.

Still, GlobalData retail analyst Emily Salter called this a “solid year” for the brand off the back of its investment in stores and innovation.

“The retailer relocated 11 UK stores to larger units during the period which saw an impressive 39.6 per cent increase in like-for-likes, indicating Lush’s dedication to the offline channel as it seeks to further differentiate its unique offering and drive customers to stores,” Salter said.

Salter also pointed to the recent launch of a new global website, which she expects to bolster conversion and increase basket sizes thanks to the “more attractive, aspirational and easy-to-navigate site”.

She believes the brand is in a good position for growth due to its strong brand identity, and commitment to vegan and ethical practices.

There is a downside to this, however, as Salter said the brand’s focus on natural ingredients was partly to blame for the increased costs.

“The retailer must work to return to profitability in its current financial year, although the increased ingredient costs will be hard to navigate due to Lush’s focus on natural and good quality ingredients,” Salter said.

While performance in Lush’s largest retail market, the US, was disappointing – with declining footfall contributing to sales falling by 7.5 per cent – its UK business fared slightly better.

Lush Australia was contacted for comment.

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