Shares in Specialty Fashion Group continued to fall yesterday after the big slide Wednesday off the back of an early earnings downgrade that halved its estimated first half trading profit.
The shares fell more than 9% to 19.5 cents after the 14% slump to 21.5 on Wednesday. At 19.5 cents the shares are at an all time low, and the market smells danger.
Specialty Fashion owns the Millers, Katies, Crossroads, Autograph, City Chic and Rivers chains and brands and blames what it calls the difficult market conditions in July which continued over the remainder of the first quarter.
“The negative impact of the first quarter on trade means that any improvement is unlikely to be sufficient to recover the shortfall in earnings,” the company said.
Specialty Fashion now expects its first half underlying earnings before interest, tax, depreciation and amortisation (EBITDA) to be in the range of $14 million to $17 million compared to $30.4 million last year.
“The business is continuing a robust improvement program focused on optimising the store portfolio, accelerated closure of loss making stores and continuation of its cost out program. Concurrently, it has now completed the successful implementation of a new Ecommerce platform to maximise multi-channel migration,” the directors says.
The company’s profits have been dragged down since it bought Rivers, the warehouse-style clothing retailer, in 2013.
In 2017, its net loss after tax was $8.4 million – a figure driven by the decision to exit its City Chic stores in the US which triggered write down losses. Directors pointed out that activity in the clothing and apparel sector has remained intense into the new year with widespread ‘promotional’ activity or price cuts by rivals.
The shares fell 23% after that result was revealed, and now they have suffered another nasty fall.
Revenue was down 2.1% to $808.91 million but it a notable positive was that the company said Rivers returned to profitability
Many clothing retailers in Australia have been hit hard by pressure from emerging digital competitors and weak market conditions.
So far this year Topshop, Topman, Marcs and David Lawrence have collapsed. But chains like Kmart, Kathmandu and electrical chains such as JB Hi continue to do well.
But Myer and David Jones are battling the malaise in department stores – David Jones is trying to counter that by investing heavily in new food areas (the second time different owners have tried that approach), while Myer is struggling and fighting with its biggest shareholder, Solomon Lew and his Premier Investments group.
Myer faces a moment of truth on November 1. It will update the market on its turnaround strategy at an investor day on that date, with Solomon Lew pushing for the department store owner to release its first quarter trading performance
Earlier this year a $135 million takeover for the retail group vanished after the bidding company, Al Alifa, which is controlled by the Qatari royal family, walked away from the deal following the former Qatari ruler’s death.
Specialty said on Wednesday that since the ruler’s death, there had been no further discussions with Al Alifa. That removed lingering market hopes for a new offer.
