Warm weather withers profits

Suzanne Kinnaird.
Suzanne Kinnaird.
Retailer Hallenstein Glassons has indicated it expects a much-improved profit performance in the future after reporting a more than 23% fall in its earnings for the year ended August 1.

The operating profit was down nearly 17% to $26.6 million, earnings before interest and tax were down 21% to $18.7 million and the reported profit was down 21.3% to $13.7 million, or 22.9 cents-per share.

Like most clothing retailers, Hallenstein buys in seasonal stock and relies on predictable weather to ensure customers buy its coats in the winter and beachwear in summer.

But in the latest winter season, consumers in both Australia and New Zealand basked in what the company called "record mild temperatures", reducing both sales and margins.

It also suffered from a lack of leadership at its Glassons womenswear chain before luring back former Pumpkin Patch chief executive Di Humphries to run the unit last April.

Forsyth Barr broker Suzanne Kinnaird said no guidance had been provided for the 2017 financial year.

However, the year had started well with group sales for the first six months up 9%.

The much-improved profit was likely to be underpinned by Glassons, where significant changes had been made to the buying team and divisional management to improve the product range, she said.

The biggest deterioration in the latest year was from Glassons Australia, which recorded a loss of  $1.9 million, which the group blamed on a mild winter and margin pressure, from a profit of $170,000 a year earlier.

Sales were little changed at $41.2 million while cost of sales rose 8.2%  to $17.3 million.

"Early signs are positive, with sales in Glassons NZ up 21% on year to date. Margins are also higher. Over the past four years, the brand has come under significant pressure, losing market share and reporting a material decline in margins."

Hallenstein Glassons was a cost-lean business.

Revenue growth should drive a material improvement to earnings, she said.

The apparel market,  particularly womenswear, remained highly competitive.

But improved execution and strong buying should help to deliver strong near-term earnings growth for Glassons, off a weak base, she said.

The retailer closed two outlets during the year and said further "rationalisation" of under-performing stores was possible.

At the same time, three stores were refurbished  and more would be changed out to a new format.

Two  stores would be opened before Christmas, the company said.

A final dividend of 16.5 cents-per share would be paid, unchanged from a year earlier.

Shares last traded at $3.01 and have dropped 11% in the past 12 months.

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