Despite the recent recovery in retail sales, with October’s rise coming in at a surprisingly better than expected 0.4% yesterday, not all retailers are feeling the benefit.
In fact for all the recovery in retailing for most of this year (compared to the weakness in much of 2013), retailing has been something of a disaster area.
For varying reasons, retailers from Woolworths to JB Hi Fi, Noni B, Speciality Fashion Group, The Reject Shop and Kathmandu have been whacked by worried investors as they have reported weak sales/and/or profits.
It’s part of a trend the world over where retailing is very patchy and the market belief in these once fortress-like defensive stocks is very much up in the air.
This week supermarket and hardware group Metcash saw its shares plunge by close to 25% over two days before recovering a little after it revealed weak first half earnings and lowered forecast earnings for 2011-15.
That is a possible fate awaiting a host of retailers from next February onwards when the first reporting season arrives.
Yesterday the recently listed PAS Group (PGR) got in early with a downgrade – the second since August when it said it had been affected by the downturn in consumer activity after the Federal budget in May.
PAS Group, which listed in May at $1.15, saw its shares plunge more than 15% yesterday to end at 64c. At one stage the shares were down 23% after it cut earnings forecasts by 15%.
PAS shares actually fell more than 15% on its day of listing in May and the shares have struggled since. It hasn’t been a good float.
PGR YTD – Pas Group joins the retail downgraders
The company is a distributor and retailer and it’s not travelling well, judging by yesterday’s comments – and nor is the men’s and women’s fashionwear sector.
The downgrade suggests PAS will report earnings before interest, tax, depreciation and amortisation (EBITDA) of between $28.1 million and $29.8 million in the 2014-155 financial year. Its June prospectus expected EBITDA of $33.1 million this financial year.
PAS Group told the ASX yesterday it had brought forward its market update due to the discretionary retail segment remaining “more challenging than expected” since its annual general meeting in late October.
PAS Group said that while it expects net profit, sales and EBITDA to fall in the first half, its second half will be stronger due to store openings, new brand licences including Hello Kitty and Dunlop, and better performances from its key clothing brands, Review and Metalicus.
PAS Group brands include AFL, Marco Polo and Mooks, and the company still plans to increase its store numbers from more than 200 to 340 by the end of the 2017 financial year.
It said that due to market conditions in the discretionary retail segment remaining it expects a net profit of $3.3 million in the first half of 2015, down from $4.9 million.
First-half sales are now expected to fall to $118.7 million, from $121.7 million in the previous corresponding period. Earnings before interest, tax, depreciation and amortisation are also expected to almost halve to $8.6 million from $16.3 million.
This won’t be the last report of its kind from the retailing sector in the next four to five months.
