Shares in budget clothing retailer Specialty Fashion surged to a near year high yesterday of 70 cents after it reported a surprisingly good interim financial report.
The shares leapt more than 30% to a high on the day of 70 cents – the first time they have been there since 11 months ago when they were falling off the back of weak trading data and problems with the integration of the takeover of the Rivers fashion group.
They retreated to end the day up 15.3% at 60 cents.
But yesterday directors reported that the company is now on track to return to profitability this year after losses at Rivers were halved and its core labels like Millers and Katies posted solid sales growth.
That saw the 50.6% rebound in interim net profit to $8.8 million, but on a much slower 5.2% rise in sales for the December half year to $434.3 million, thanks to the opening of a net three new stores in the half.
Encouraging underlying comparable store sales rose 5.7%, the fourth consecutive half year of growth.
Losses at Rivers halved to $5.2 million from $11.2 million for the latest six months, thanks to the end of cut price stock clearances and the closure of three warehouses, and the shutting of the Melbourne HQ of Rivers and its relocation to Sydney. That in turn saw the loss of 130 jobs which has helped right-size the floundering business.
Chief executive Gary Perlstein issued no guidance for 2016 but said in a statement he was confident Rivers would start trading profitability during 2017 and deliver a meaningful contribution to group earnings in the future.
Specialty Fashion bought Rivers from founder Philip Goodman for just $4 million almost three years ago, but it has been a constant headache for Speciality as it struggled with too much stock, too many staff and expensive facilities.
As a result of the improved trading at Rivers and in its various chain stores, Speciality’s underlying EBITDA rose 19.5% to $27 million in the latest half.
That was despite a fall in gross margins fell to 57.2% from 62.2%. But that fall was more than offset by a larger call in the cost of doing business – from 54.7% to 51.3% in the latest half thanks to the improvements at Rivers and the closing of underperforming stores and efforts to cut rents.
Mr Perlstein said yesterday the company will focus on further business improvements and growing its omni-channel offering, with a view to expanding overseas.
“The key to success will be to compete for increased sales and improved margins through product differentiation and customer engagement of our brands rather than competing on price,’ he said in the statement to the ASX.
“The group will also focus on potential growth opportunities for our brands through measured entry into retail markets beyond Australia,” he said.
Despite the improvements at Rivers and in sales and net margins, an interim dividend was not declared.
