More retailers on the rack in raft of profit warnings

Jane Harper
Herald Sun
July 14, 2012

THE retailer behind a string of chains including Katies and Millers has warned its profitability is tumbling as another wave of woe washes over the beleaguered sector.

Specialty Fashion Group says full-year earnings are likely to have almost halved as consumers continue what increasingly appears an irreversible march to the internet.

The latest downgrade follows a raft of similar profit warnings over the past year by a rollcall of the nation’s retail heavyweights.

And it ends another bleak week for the sector that saw Darrell Lea, the venerable confectioner-cum-retailer, slide into administration and Myer unveil plans to cut 100 administrative jobs.

Specialty Fashion’s share price fell almost 4 per cent yesterday after it warned that its profitability for 2011-12 had tumbled.

The group expects to post earnings before interest, tax, depreciation and amortisation of $21 million to $22 million for the year to June. It was the second profit warning issued this year by the retailer, which had earnings of $40.6 million last financial year.

Specialty Fashion is one of a host of prominent Australian traders, including heavyweights Myer and David Jones, to disappoint investors with downbeat revenue and earnings forecasts.

Morningstar analyst Tim Montague-Jones said the sector was being hit by a double whammy of both cyclical economic hardship and long-term structural change, characterised by the increase in online shopping.

“Even if there is a cyclical upturn, it will be diluted by the structural shift,” Mr Montague-Jones said.

Specialty Fashion chief Gary Perlstein said the company was treating the shift in consumer behaviour as permanent.

“Generally consumers are very anxious and the industry is going through enormous change, but you’ve got to meet the market,” he said.

Mr Perlstein said Specialty Fashion, like many other retailers, was focusing more intensely on the internet.

The group accrued $15 million of sales online – about 2.6 per cent of total sales – in the year to June.

Mr Perlstein said it was on track to generate 15 per cent of sales through online channels within three years.

He said Specialty Fashion had made good on its threat to close 21 underperforming stores in the past six months.

It remained committed to closing up to 100 more over the next three years if landlords did not lower rents in response to the retail slump, he said.

The retailer reported sales revenue for the year to June of $573 million, with a 3.4 per cent drop in crucial like-for-like sales, which strip out the impact of stores that have opened or closed.

Revenue for the six months to June was $265 million – 1.4 per cent higher than in the same period last year, but with a 2.3 per cent drop in like-for-like sales.

City Index chief market analyst Peter Esho said the group’s web sales were still too low to have a significant impact on its results.

“(Specialty Fashion) is in the same price point as Target and needs to figure out how to break out of that and gain some dominance,” he said.