Once again we have an example of the two speed earnings with BHP Billiton’s record profit and The Reject Shop’s fall and revelation that it could be facing financial strains because of the Queensland floods.
But in the case of The Reject Shop (TRS), the hit from November’s interest rate rise and weak trading conditions has been overwhelmed by the impact of the southeast Queensland floods.
They have wreaked havoc on the company’s operations and cash flow, forcing it to use more debt and to reshape its logistics chain to make up for the flood damaged and out of commission new distribution centre at Ipswich, west of Brisbane.
The company lost millions of dollars of stock in the Ipswich centre which has had to be replaced to keep stores in the region operating with sufficient inventory.
While the company told the ASX yesterday that earnings dipped 16%, it said it wouldn’t be providing guidance for the full year due to uncertainty about the costs to the company of the Queensland floods.
To conserve cash, the board cut the interim dividend by more than a third to 23c a share from 39c for the first half of the 2010 financial year.
The company still had not finalised costing of the flood damage in Ipswich.
"Whilst the Company’s insurance policies are robust, the recoupment of all losses associated with the flooding is uncertain and any estimate is premature at this stage, particularly with respect to the ongoing impact on sales, gross margin and increased costs of working throughout the half.
"As a result, the Company is unable to provide updated profit guidance as the overall impact of the Queensland floods can not be fully evaluated at this stage.
"Whilst ultimately recoverable, the need to fund both the replacement of inventory and equipment over the next few months has meant working capital is at a premium."
The Reject Shop said half year net profit fell 16% in the December six month to $15.914 million.
That was on a 10.2% rise in revenue from continuing operations to $275.897 million, up 10.2%.
The Reject Shop said in the ASX statement it was unsure how much of the cost of the floods could be recouped by insurance.
"The Company has accessed additional debt facilities, however the Board believes a conservative approach to capital management is required in the short term.
"The Board has therefore declared a moderated interim fully franked dividend of 23 cents per share."
The uncertainty over the costs of the floods came as trading in January and February so far has been "below expectations, impacted significantly by the flooding in Queensland and the loss of the Ipswich Distribution Centre," the company said.
"Store closures due to adverse weather in Victoria have also impacted sales."
The Reject Shop said earnings before interest, tax, depreciation and amortisation (EBITDA) for the six months to December 31 were $29.7 million, marginally below the prior first half’s $30.9 million.
Net profit had fallen, however, due to store openings and the opening of the company’s new distribution centre at Ipswich, which was damaged significantly in the Queensland floods.
The Reject Shop said the Ipswich centre would not be fully operational again until early in the next financial year.
In the meantime, the bulk of stock processing for all stores would be carried out in Melbourne.
Results this half (which is a slower and lower half for retailer anyway) are going to be down as well.
But by how much is the question.
The market took the shares down 3%, or 41c, to $13.09 yesterday after the result was released.
They are now where they were in early December after the initial profit and sales downgrade.
And the Bank of Queensland has cut full-year profit guidance for the second time in two months, this time due to the impact of floods and Cyclone Yasi in its home state.
The bank told the market yesterday that after a review of its portfolio and operations, the bank said it now expects cash profit for fiscal 2011 to be between $175 million and $195 million.
That guidance is down $35 million from the previous range of $210 million and $230 million, which was issued on December 8, itself a downgrade from earlier guidance of between $220 million and $250 million.
At worst earnings could be down $75 million, at best they could be around $55 million lower.
BOQ has 62% of its business in Queensland.
"Given our high business concentration in Queensland, we’ve taken a prudent approach to these events," managing director David Liddy said in yesterday’s statement.
The bank said it had lifted its provisioning levels for the first half of fiscal 2011 by $45 million, due to a one-off management overlay relating to the extreme weather events and economic conditions.
The profit downgrade may impact on dividends, Mr Liddy warned.
"Given these one-off charges, the board may need to review the projected dividend growth," he said.
The bank expected to see asset growth accelerate in fiscal 2012 as the rebuild work in flood-affected areas gained moment
