Pac Brands/ Noni B: Tough Times in The Rag Trade

Sydney, Aug 21, 2008 (ABN Newswire) - More and more Australian companies are finding themselves in the profit report naughty corner, so far as investors are concerned; both for indifferent 2008 results and/or cloudy 2009 outlooks.

In fact more and more companies are telling the market they have no idea how things are going and will go in 2009 and say they will wait to update guidance at the AGM in October or November.

Good luck, because the way the economy is going, especially in retailing, there probably won't be much more clarity by then.

Take ragtrader, Pacific Brands Ltd, home of the iconic Bonds range of undies and things, Yakka and other clothing products.

It reported a small rise in annual profit for 2008, but expects flat to negative sales for the remainder of calendar 2008 before recovery in 2009. That sort of matches the outlook issued by retailer, David Jones last week.

Pacific Brands reported a $116.56 million profit for the year to June 30, compared with the $106.0 million earned in the 2007 June 20 year.

The result was in line with the company's forecast confirmed at the release of its first half results and in line with analyst estimates for earnings in the range of $114 million to $118 million.

The company says it expects sales growth of two to three per cent, while maintaining strong cashflow in the coming year. That was after a 16% rise in revenues in the 2008 year to $2.117 billion.

Pre-tax earnings rose 17% to just over $226 million, but the company won't repeat that performance in the coming year as its budgeting on sales growth of just 2% to 3%; not unless there's sharp cost controls and cuts, possibly in employee numbers if things don't pick up quickly next year.

The company is looking for earnings growth of 3% to 5%, but it will be tough if the economy continues to soften.

"We will achieve this through tight control of expenses, targeted and tailored marketing investment and ensuring an inventory balance consistent with sales," the company said in a statement on Wednesday.

"Against a backdrop of flat to negative economic outlook for retail for the first half at least, we are focused on ensuring the business is trading at peak performance and ready to capitalise on the eventual upturn in activity."

"Economic commentators generally predict flat to negative retail sales for the remainder of calendar 2008, with recovery emerging in 2009. Consistent with our second half, we are well positioned for the down-turn delivering the staple brands of choice for customers and consumers.

Our focus during this period will be on growing market share. Based on the economic outlook, we expect FY09 like for like sales growth of 2-3% EBITA, NPAT and EPS growth of 3-5%, while maintaining strong cashflow.

"Acquiring and integrating Yakka, Sheridan and Brand Collective has strengthened our resilience. Having increased the diversity of our product and customer base, we are better able to trade through the market conditions we are experiencing now.

"We are well placed to capitalise on the opportunities that will arise as conditions eventually improve.

Pacific Brands said it will provide an update at its performance at its Annual General Meeting in October (As will quite a few companies like Boral)

Pacific Brands is paying a final dividend of 8.5 cents payable on October 1, making a total of 17 cents for the year, fully franked. That's up from 16.5 cents in 2007, hardly a generous increase.

Chief executive Sue Morphet said in a statement accompanying the profit figures that the company's performance had been achieved in challenging trading conditions and demonstrated the resilience of the Pacific Brands business.

"Despite economic conditions, we remained focused on core brands and delivered profitable growth," Ms Morphet said.

"Despite its stable of strong brands, Pacific Brands has not been completely immune to the recent downturn.

"We have found the top-end manchester market and women's fashion footwear to be particularly sensitive to the change in consumer sentiment."

She said Pacific Brands' acquisitions of The Yakka Group, Brand Collective and Sheridan helped drive earnings as well robust sales in its underwear and hosiery division.

Earnings per share rose to 23.7 cents, from 21.3 cents the previous year.

The shares eased 4 cents to $2.03

Sydney-based Women's fashion retailer Noni B Ltd was twice sent to the naughty corner this year for profit downgrades, but the market yesterday appreciated that the group had at least met its reduced earnings for the 2008 year, and expected to improve in what will be a rough 2009.

The company reported a 69.3% fall in annual profit to $2.54 million for the June 30 year, down from $8.26 million in 2007.

But unlike Pacific Brands, the company revealed a profit forecast for the year.

"Assuming continuation of the current difficult trading conditions, but no further significant reduction in consumer spending on women's fashion, the company conservatively expects FY2009 after-tax profit will be between $6.5 million and $7.5 million," the company said.

But 2008 and all the problems had to be explained

"This has been the most difficult and disappointing year since Noni B listed on the ASX in 2000," joint managing directors James Kindl and David Kindl said in a statement to the ASX yesterday.

Excluding the impact of $2.5 million in restructuring costs and $2 million of trading losses due the discontinuation of its La Voca concept stores (revealed in the June downgrade) the net result was $7 million.

The joint managing directors, James and David Kindl said "Consumer spending on women's fashion has weakened progressively, and this has had a particular impact on our new La Voca store concept, which was launched in August 2006 and had been unable to establish itself.

"With La Voca due to make a trading loss of $2.0 million after tax for FY2008, the decision was taken in June to restructure and cease trading in La Voca stores. This has resulted in non-recurring costs totalling $2.5 million, all of which have been included in the FY2008 results.

"Two La Voca stores have been rebranded Noni B and the other leases have either been transferred or are due to expire shortly; the residual La Voca stock will be sold through existing channels.

'We are now able to focus all our resources and energy on increasing the profitability of our core Noni B business and the Noni B and Liz Jordan brands. While margin pressure affected the earnings of Noni B stores during the second half of FY2008, their sales continued to grow and, according to shopping centre reports, they increased their share of the current weak women's apparel market.

''We are continuing to upgrade stores to increase their appeal to new customers, and in FY2008 invested $2.7 million in refurbishing or relocating 32 stores, an increase of $1.7 million over the previous year. We are also identifying opportunities for new stores; 10 Noni B stores were opened during FY2008 and a further 3 are due to be opened before Christmas.

"With 3 underperforming stores closed during the year, this will bring the total to 207, covering all states and territories, and we believe there is scope for considerable further growth.'

Sales by Noni B stores rose 3.2% to $123.2 million in the year.

Noni B said while difficult trading conditions in the retail sector were likely to continue in the new year, it "conservatively" expected to generate a 2008-09 net profit between $6.5 million and $7.5 million.

Directors said that "Reflecting the directors' confidence in the company's future prospects, the final dividend has been maintained at 10 cents per share, fully franked. This will bring dividends for the year to 20 cents per share, fully franked, an increase of 5.3% on 2007's 19 cents".

With earnings per share of just 7.6 cents, the company will have to dip into reserves to meet the maintained payment, hence the optimism about the current year and an improvement in the bottom line

As the Kindl family owns 40% of Noni-B, they will be the largest beneficiaries of their confidence in the company, plus a continuing buy back which has helped steady the shares after the losses this year.

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