Universal Store flags major drop in underlying FY22 earnings as inflation/interest rates bite

Universal Store (ASX: UNI) opened -2.90% lower this morning after the smallcap fashion chain retailer guided to seriously lower underlying earnings in FY22 with revenue for the year also likely to be down.

In light of rising interest rates and soaring inflation, management now expects sales for FY22 to be between $205m and $207m, against sales of $210.8m in 2021.

Underlying earnings are now likely to be between $30m and $31m against earnings of $44m in 2021.

Other highlights within the retailer’s trading update were:

• Total sales growth for 2H 6.9% with online sales growth of 27.3%

• 1H sales down -8.2% with 25% of trading days being lost

• Aided by growth in 2H and new store openings, YTD sales are down - 2.3% on 2021

• YTD like-for-like sales, including online, down -2.8%

Cost of living increases are biting

Commenting on the trading update, management notes while sales momentum in the second half in pleasing, interest rate hikes and other increases in costs of living have become more apparent in the market.

However, as previously flagged, the company will continue to invest in new office and distribution centre projects, technology – all necessary investments for scale and continued growth.

“We are mindful of the ‘cost of doing business’ challenges across supply and service chains impacting the retail sector.”

In terms of its supply chains, the company is experiencing some delayed delivery of third-party brands.

The company expects to finish FY22 with inventory in line with plan and net cash of more than $20m.

Universal Store share price over 12 months.