Specialty Fashion earnings shock

Womenswear retailer Specialty Fashion Group may not proceed with some planned store closures despite warning that its full-year earnings will be halved due to falling sales in a depressed market.

Specialty Fashion Group announced on Friday that earnings before interest, tax, depreciation and amortisation (EBITDA) would be $21 million to $22 million for the year ending June 30 – nearly half the $40.6 million posted the previous year.

Specialty Fashion Group reported earnings of $21.9 million for the six months to December 31, 2011, and CEO Gary Perlstein said the company would be in “basically a break-even situation in the second half”.

“Most of our profit comes out of the Christmas half,” he said.

In February the company announced plans to close 120 stores but  Perlstein told AAP on Friday that improved gross margins on goods sold, along with reduced rents negotiated with landlords, meant that closures may range from 90 to 110.

In an earnings update, the retailer said revenue for the year to June 30, 2012 was likely to be flat at $573 million as a result of tough trading conditions.

Like-for-like sales, which exclude the effect of store openings and closures, were down 3.4 per cent.

Shares in the retailer, which owns brands including Katies, Millers and City Chic, slid two cents or 3.9 per cent to 50 cents.

However,  Perlstein said the company was in a strong position, with cash reserves of $4 million and untapped debt facilities of $78 million.

Specialty Fashion Group has been cutting costs and building its online presence in a restructuring to cope with “permanent structural change” in the struggling retail industry.

Of $14 million in full-year capital expenditure, $3 million has been spent on IT systems to support new online sales systems, while $10 million has been spent on physical store openings and refurbishments.

Online sales accounted for 2.6 per cent of full-year revenue in 2012, a threefold improvement on the online contribution in 2011.

The company hopes to grow online to 15 per cent of total revenues within three years and has launched new web outlets, including the Stylefix multi-brand site, to boost internet sales.

Perlstein said growth in the City Chic brand, which now achieves 12 per cent of sales online four years after it was launched, demonstrated that the 15 per cent target was achievable.

“We are in a difficult space, a difficult environment,” he said.

“I think the key issue is to accept that the current environment is reality and not sit there waiting for some cyclical change.”

Perlstein said he did not see the company as vulnerable to a takeover from a private equity firm.

He declined to give guidance on full-year profit.

Net profit after tax was $14.17 million in the year to June 30, 2011 – a 53.4 per cent fall on the previous year.



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