Studio Retail Group Down 40% – Why Are The Results Just Not Good Enough?

Studio Retail Group PLC’s (LON: STU) shares are down 40% and change this morning as a result of their trading update. The financial performance at Studio Group isn’t objectively bad – it’s better than it was – but clearly the market doesn’t like those results. The reason is that a digital retail company should be doing much better than this in these current times.

That is, Studio Group is failing to advance as it should be given the surge in online shopping. It’s not taking advantage of the change in our habits.

In the short term and in detail this is not something anyone wants to see in a retail trading announcement: “ higher levels of good-quality stock” and “surplus stockholding position” really means that they’re going to have to have some sales at cost to gross margins.

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But that short-term and in detail issue isn’t what has really hit the shares this morning. The problem is that Studio Retail isn’t growing like investors think it should be.

Take a step back for a moment. We’ve all seen the incredible growth in sales numbers for Amazon, boohoo, even THG. There’s a landrace going on to establish who the prominent online retailers are going to be going forward.

We also know that there’s been a discontinuity here. Before lockdown online was eating perhaps 1% of the retail sales market each year. Then came lockdown and for obvious reasons that jumped from perhaps 16% of all retail sales to some 26%. There’s going to be a fall back from that – some people do regard shopping as a social activity after all.

But here’s the thing, Studio Retail just isn’t showing that sort of growth. OK, so we’re seeing a 5% decline in sales from last year’s lockdown boots, that might be fair enough. But Studio Retail is only 18% up on the pre-lockdown performance of 2 years back for the quarter under discussion.

The net effect of this is that Studio Retail doesn't seem to be enjoying the boom that other parts of online retail have been. Or even, that Studio Retail is falling behind other online retailers in that landgrab to be the new secure institutions in that new retail landscape.

Which is why, presumably, the share price fall today. The results are not objectively bad, coming 5% off the lockdown peak isn’t bad, nor is 18% growth extracted without the lockdown effect. But compared to the others in largely the same market this is going backward, not forwards.

That is, the Studio Retail results were good enough, but not actually good enough. The next significant news from the company is likely to be either an announcement of their capital financing work or, perhaps, the next trading statement. It’s possible to think that unless those results are startlingly good then there might not be a bounce here.