Winter sales crucial after profit drop

Hallenstein Glasson (pictured, its Hallensteins Dunedin shop) is looking to winter sales for an earnings boost. Photo by Peter McIntosh.
Hallenstein Glasson (pictured, its Hallensteins Dunedin shop) is looking to winter sales for an earnings boost. Photo by Peter McIntosh.
Main-street clothing retailer Hallenstein Glasson has booked a 40% profit plunge for its first-half trading - undercut by competitive discounting and summer sales - as it readies for the crucial winter sales season.

While the profit plunge was expected - Hallensteins had offered up a second profit downgrade of almost 40% in mid-January - the half-year result reflects ongoing difficulties in much of the clothing retail sector.

Hallensteins' shares hit a year high of $5.45 in early April last year and a year low last week of $2.80 but were up 3% at $3.10 after yesterday's expected news.

Group sales for the six months ended February were down 8%, from $115.7 million a year ago to $106.4 million, while unaudited after-tax profit was down 40%, from $10.3 million to $6.1 million.

Craigs Investments Partners broker Peter McIntyre said investors would be concerned about the 25% decline in dividends for the period, from 16c per share to 12c, and that Hallenstein had ''so quickly'' seen its cash in hand decline almost $3 million, from $19.31 million at the start of the year to $16.4 million.

Hallensteins chief executive Graeme Popplewell said there was still ''considerable work to do'' to ensure the business recovered its earnings to historic levels, but he was encouraged by results during the past few weeks.

''The key winter trading months of May and June will be critical to achieving our targeted earnings for the winter season,'' Mr Popplewell said.

He described the balance sheet as remaining ''robust'' , with stock inventories at an acceptable $14.58 million, and a cash reserve of $16.4 million.

Forsyth Barr broker Suzanne Kinnaird said Hallensteins' decline on a year ago reflected the tough retail backdrop and highly competitive apparel marketplace, and management decision making, having either too much inventory or the wrong inventory.

''Divisionally, Glassons and Hallensteins were ahead of our expectations, while Storm and Glassons Australia were worse than we forecast,'' she said.

She said there was a positive to short-term forecasts, largely driven by Hallensteins, that it could recover from two consecutive disappointing earnings results, second-half trading in 2013 and first-half 2014.

So far, group sales for the first six weeks of the second half of 2014 were up 2% on a year ago, and while it was ''early days'' in the winter season, that was a better-than-expected start to the season, Ms Kinnaird said.

Mr Popplewell said each chain in the group failed to execute the summer season to potential, and he noted the appointment of Tracy Shaw after a 15-month search.

As the new chief executive for Glassons, she would be an important element in returning Glassons to ''satisfactory performance,'' Mr Popplewell said.

Mr McIntyre said the ''heat'' would be applied to Ms Shaw, as stopping the erosion in Glassons' sales was ''critical'' to the overall group's performance.

simon.hartley@odt.co.nz

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