It’s another example where takeovers destroy value and cause problems out of proportion to the claimed benefits.
As forecast in January, the Sydney-based womenswear retailer, Specialty Fashion’s (SFH) takeover of the heavily advertised Rivers brand and clothing outlets has cost it dearly in the six months to December.
Speciality yesterday said earnings for the six months to December 31 fell more than 60% thanks to wider losses at Rivers, which was bought for a reported $5 million in November, 2013.
That was despite Rivers powering a 27.4% jump in Speciality Fashion’s sales for the half year to $413 million.
But those extra sales chewed up profit margins to the point where Speciality’s earnings before interest, tax, depreciation and amortisation (EBITDA) fell 27.5% to $22.6 million, and net profit for the half year plunged 64% to just $5.85 million.
The net profit was short of market forecasts around $7.0 million, but EBITDA came in ahead of expectations, which wasn’t much comfort to Speciality Fashion’s shareholders who will miss a reward because directors have decided to omit interim dividend.
SFH 1Y – Rivers acquisition weighs down Specialty Fashion
Specialty Fashion chief executive Gary Perlstein had warned last month that first-half EBITDA was expected to fall by as much as 32% to between $21 million and $23 million because of the wider than expected losses at Rivers.
Speciality’s directors said that while sales and margins improved at Katies, Millers, Crossroads, Autograph and City Chic, Rivers’ losses widened to $11.2 million as the new management team cut prices to clear mountains of excess stock and slashed its heavy advertising spending.
Rivers’ losses are expected to continue for the next 12 to 18 months, dragging down group results, but Specialty Fashion believes that by liquidating old stock, bringing in new stock and fixing Rivers stores it can rebuild the brand and Rivers will eventually make a profit.
Specialty Fashion shares fell 4% to 67 cents yesterday. The shares jumped 11% to 88 cents when the Rivers purchase was announced on November 29, 2013, so the loss is around 24% since that announcement.
