In one of the more amazing market moves, serial underperformer, the shrinking Pacific Brands (PBG) produced a surprise earnings UPGRADE (my emphasis) yesterday and the shares jumped in shock, rising more than 50% to 49 cents at the close yesterday.
For much of the past five years PBG has been shrinking itself to try and find the right mix to survive in the sluggish Australian retail scene. It has tried local production, then moved offshore and then sold off assets last year and earlier this year to get rid of non essential parts of the company.
And judging by yesterday’s upgrade, it has, for now.
PBG 1Y – Has Pacific Brands turned the corner?
Pac Brands attributed the higher earnings to cost-cutting and the continued strong performance of its Bonds underwear and Sheridan brands in the June half of the 2014-15 year.
The Melbourne-based company said it now expects earnings before interest and tax (EBIT) will be between $A63 million dollars and $A65 million, after stripping out one-time items, where in February it had forecast earnings of $A57.4 million-$A63 million for the year to June 30.
Sales growth for the year is now expected to be about 5.3%. The company had EBIT of $91 million in the year to June 30, 2014, but the company is much smaller since then. But 2013-14 also saw write offs of a rather large $224 million, which produced a bottom line loss. The company is looking for a bottom line profit in 2014-15.
It said the key contributing factors to the improved second-half results were the performance of Bonds underwear products and Sheridan sheets, towels and other products, margin management and cost control.
But as is now usual with the company, it had a moan about how tough it has been to sell through discount department stores.
PBG says that from a position of being in debt a year ago, it is expecting to be in a net cash position (by around $1 million) after selling its work wear business to Wesfarmers last year for around $140 million. Pacific Brands is scheduled to release its annual results on August 25.
