Small Sydney-based women’s wear retailer Noni B (NBL) is facing another fall in earnings in the June-half after same-store sales plunged 14% in the March quarter, the company told the ASX yesterday in something of a shock.
Investors reacted by selling down the company’s shares by 10.9% to 49c.
Noni B said it had tried to resist deep discounting in an attempt to maintain the higher gross margins it achieved in the first half of 2014.
But consumers accustomed to buying on discount, resisted this and deserted the company’s stores.
The trading update suggests that trading conditions for the company have worsened since the February profit announcement when joint managing director David Kindl said initial sales of the new autumn/winter range were encouraging.
Now, the company is going to cut prices in the current quarter and offer clothing lines at a discount, with the idea of trying to kickstart sales momentum and get rid of surplus stocks.
But this will hurt gross margins, which rose from 60.8% to 61.4% in the first half.
NBL 1Y – Customers resisted NBL’s attempts to protect margins, so sales plunged
Significantly, Noni B issued no new profit guidance for the year yesterday, despite the obvious corollary that a big drop in sales will mean a big fall in profits.
First half net profit slipped 3% to $1.89 million and EBIT was down 9% to $2.5 million on a 3% sales fall to $62.4 million.
Same-store sales were down 3.9% which is always a good indicator of a retailer doing it tough.
The retailer said in February it plans to close seven stores in the second half – adding to the pressure on the top line.
But the company has no bank borrowings and said its costs remained under control.
Now analysts and others will start wondering if Noni B’s news yesterday has any wider significance for retailing generally, or whether it’s a one-off, and specific to Noni B over a misreading of its customers’ behaviour.
