Shares in Pacific Brands (PBG) took a pounding yesterday after the company’s annual meeting heard a profit downgrade from CEO John Pollaers.
He warned shareholders that tough trading conditions meant that first half profit may be "materially" lower than expected, and that the company also expected the full year’s result to take a hit.
"Materially" usually means 10 to 15% or bigger.
The warning obviously started the market and the shares fell by more than 8% at one stage before steadying to close down 3.3% or 2.5c at 72c.
PBG YTD – PacBrands warns on profit outlook
In his address to the meeting Mr Pollaers said "Market conditions have been challenging with no near term signs of improvement."
"1Q14 trading has been below expectations and year-to-date sales are down compared to the previous corresponding period.
"Wholesale replenishment orders and B2B sales are down, while direct-to-consumer sales are up. Underwear and Homewares sales are marginally up, and Workwear, Footwear and Outerwear sales are down.
"Based on preliminary indications and subject to ongoing trading conditions, EBIT and NPAT (before significant items) for the full year are likely to be down, with earnings outcomes largely dependent on sales performance and gross margins.
"Preliminary indications are that 1H14 EBIT and NPAT (before significant items) may be materially down compared to the previous corresponding period due to trading conditions, along with increased investment, a continued downturn in the Workwear market (particularly in the Industrials sector) and the non-renewal of certain licences in HFO.
"However, results will be heavily dependent on 2Q14 trading which accounts for the majority of earnings in the half.
"The Company previously announced an expected $11 million profit (no tax effect) on the sale of the Wentworthville site" (in Sydney).
"This sale is due for settlement in December 2013 and the profit is expected to be accounted for in the 1H14 result as a significant item. The significant profit (post tax) is likely to be offset by costs associated with restructuring initiatives.
"While retail conditions remain far from ideal and we expect continuing short-term challenges, I can assure you our strategy is well thought-out and our transformation is well advanced.
"F14 will be a year of hard work as we continue to navigate through a difficult and, in many ways, unpredictable consumer and economic environment. We will be increasing the investment in our key brands and in new direct channels to market.
"We are doing what’s needed to reposition and change our businesses, and we’re increasing our commitment to innovation in our key brands," Mr Pollaers told the AGM.
In a separate announcement Pacific Brands revealed it had finalised the refinancing of its existing syndicated debt facility with a new $250 million facility which extends the group’s debt profile.
It said the new facility comprised a revolving credit facility of $125 million maturing January 31, 2017, as well as a second revolving credit facility of $125 million maturing January 3, 2019.
The takeaway from the Pacific Brands meeting is for investors to look at the Wesfarmers quarterly update and focus on strong performance of Kmart. They got rid of Pac Brands more than a year ago and went to China and elsewhere to source their own underwear lines. Target is doing poorly, as are retailers such as Myer and David Jones. They stock Pac Brands lines.
