According to the market, Pacific Brands (PBG) is a company going nowhere – a feeling confirmed by yet another dull interim report yesterday which had no real rays of light for long-patient shareholders.
Directors expect more of the same for the rest of the financial year – a weak, drifting retail environment, with hesitant consumers – no wonder the word ‘challenging’ was used to describe the outlook.
The shares reacted accordingly, up 2% to 47 cents, which sounds like a big rise, but in reality was only a cent.
The company made a $109 million loss in the six months to December 31, which was expected following one-off write-downs and a slide in earnings from its underwear division. But that result was an improvement on a net loss of $219 million a year ago which was also hit by losses and weak sales.
The latest result was weighed down by $138.5 million in write-downs to the company’s goodwill, brand names, plant and equipment as it sold off its Workwear and Brand Collective businesses as part of a now completed review.
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In yesterday’s profit statement Pacific Brands said it ”expects a continuation of challenging and variable market conditions”.
Newish CEO, David Bortolussi said in the statement, the declining Australian dollar had added pressure on the industry and would lead to price increases.
"We have been working hard in challenging market conditions, endeavouring to stabilise earnings and improve cash flow," he said in the statement.
"However, the significant drop in the Australian dollar over recent months places increasing pressure on the industry, which will need to respond operationally and also through price increases from the winter 2016 season when most hedge books unwind."
Mr Bortolussi said lower exchange rates were expected to "adversely impact margins, inventory balances and cash conversion" in the fourth quarter of 2015 and into 2016 and 2017.
Earnings before interest and tax from PacBrands’ underwear division fell 26% to $26.7 million as weak wholesale sales and margins offset stronger retail sales.
The company has cut its domestic manufacturing in favour of importing when the dollar was close to or above parity with the US currency. Now the Aussie has lost value, those imports are costing more when if domestic manufacturing had been maintained, then the fall in the dollar would have provided a boost.
Mr Bortolussi said the company’s retail business performed well during Christmas trade but the wholesale business, particularly in discount department stores, struggled, and full year will largely be dependent on trading in May and June.
