Sales wobble but Laura Ashley delivers cash for patient shareholders

Disclosure: I own shares of Laura Ashley.

Laura Ashley delivered a second interim set of results today, covering the last 52 weeks.

These are effectively annual results, but because the group has changed its year-end date from 31 Jan to 30 Jun this year’s final results will actually cover 17 months.

This firm is a portfolio holding of mine, so I was very interested in today’s results.

Quick view: Profits were down slightly, but like-for-like sales in the core UK retail division were up. Overall my impression was that the 8% dividend yield remains safe and continues to be backed by free cash flow.

After an initial wobble this morning, it appears the market agreed with my view. The shares closed up slightly a few minutes ago. I continue to hold.

In more detail

Pre-tax profits before exceptional items were £20.7m for the 52-week period, down from £22.9m for the 53-week period last year. The decline was partly due to having one fewer week and partly the result of poor trading in the firm’s franchised international division — mainly in Japan.

Laura Ashley’s UK chain of retail shops performed well, and like-for-like sales rose by 4.8%.

There was a welcome 3.1% reduction in operating expenses.

For me, Laura Ashley’s appeal likes in its strong free cash flow and similarly strong balance sheet. These appear to remain intact. The cash flow statement requires careful reading as the dividend is included in the operating cash flow section, which confuses most online data services (dividend payments are normally listed in the financing section of the cash flow statement):

However, said careful reading shows that operating cash flow was £25.1m over the last 52 weeks. Of this, £19.2m was free cash flow (excluding the purchase of the group’s new Asian HQ building in Singapore). From this free cash flow, £14.5m was paid to shareholders as dividends.

Today’s results confirmed another 1p interim dividend which takes the payout for the last year to 2p per share. That’s an 8% yield, backed by free cash flow. What’s not to like?

The balance sheet also remains strong, with £17.1m in cash. There’s no debt except for the £19.7m mortgage on the aforementioned Singapore office block. This purchase continues to divide investors, and does seem strange.

Despite this, I see no reason to suspect any foul play. Singapore isn’t China — the building exists and is located in a regular commercial district. Laura Ashley will no doubt let out any parts of the building which aren’t required for its Asian headquarters.

Final word: Laura Ashley had a fairly unexceptional year, but the firm’s finances remain healthy. I believe that there is potential for further expansion in Asia. This will be done through the firm’s wholesale/franchise model, meaning that the risk to shareholders should be low.

I continue to hold.

Disclaimer: This article represents the author’s personal opinion only and is not intended as investment advice. Do your own research or seek qualified professional advice before making any trading decisions.