Despite a rise in sales, Marks Electrical has experienced a significant drop in profits.
- Sales increased by 9.3% reaching £58.8m due to strong performance in domestic appliances.
- Despite robust trading, profits nearly halved to £820,000 from £1.6m the previous year.
- A strategic shift towards non-premium products led to a 9% decline in average order value.
- Future focus includes reverting to a premium model to drive market share and profitability.
In the recent half-year period ending September 30, Marks Electrical, a prominent online electrical retailer, reported a noticeable downturn in profitability. Despite a reported 9.3% increase in sales to £58.8 million, reflecting strong demand in major domestic appliances and consumer electronics, the company’s underlying pre-tax profits nearly halved. The profits fell from £1.6 million in the previous year to just £820,000, with adjusted EBITDA dropping slightly from £2.3 million to £2 million.
This decline in profitability was partly attributed to a strategic shift by consumers who favored more affordable, non-premium products. This change in consumer behavior resulted in a 9% decrease in the average order value, impacting overall profit margins.
Looking forward, Marks Electrical is optimistic, targeting £120 million in annual sales alongside an EBITDA exceeding £4 million. However, the company anticipates an additional financial burden due to increased national insurance employer contributions, estimated at £750,000 annually starting next April.
Chief Executive Mark Smithson acknowledged the dual challenges faced by the company, including the departure from a major partner, Euronics, and the implementation of a new ERP system. Despite these hurdles, he emphasized the company’s continued profitability and cash generation. Smithson noted, “These investments, while involving short-term challenges, have been made to position the business for long-term success.”
As the company adapts to evolving consumer preferences, Smithson remarked on the necessity to revert to a premium-focused model to counterbalance the rise in distribution costs related to the lower average order values. He stated, “Whilst this pivot back to premium is likely to have an impact on the speed of our revenue growth, we are focused on continuing to execute our strategy of driving profitable market share gains, ultimately enabling the group to deliver long-term value creation.”
Marks Electrical is poised to adapt its strategies to navigate current challenges and drive future growth.
