Specialty Fashion Group (SFG) has reported a fall in net profit for the six months to December 31, citing a "very difficult trading environment", heavy discounting and increased labour and fabric costs in China as the cause.
The company's net profit declined 36.9 per cent to $16.803 million from $26.634 million in the first half of 2009/10. SFG also reported its earnings before interest, tax, depreciation, impairment and amortisation dropped 23.8 per cent to $34.6 million.
The statement released by SFG on the Australian Securities Exchange today said revenue was in line with profit guidance announced on January 13 and trading in the first half of the year included results of the company’s Queenspark brand, until it was sold in October, 2010.
Commenting on the results chief executive Guy Perlstein said although profit results were disappointing this half, SFG is adamant its growth strategy will pay off in the long run.
“We were not able to achieve growth in our sales in the half, and therefore leverage the additional costs incurred by our group – primarily rental and wages incurred from a larger store base, inflation, and investments in people which we have made to support our growth strategies. The consequence of this was a decrease in our profitability in the half,” he said.
“However, we have remained undaunted and focused on our core strategies of investing in our store portfolio, direct sourcing team and systems, and customer community relationship management capabilities. While the benefit of these strategies might not be immediately evident in the trading result, we are confident that we have made and continue to make the right investment decisions in order that the group will reap the benefits in the long term.”
SFG was also affected as a result of the flood crisis in Queensland and New South Wales and was forced to close 78 stores across the two states at the peak of the natural disaster. The company's stores in Queensland were also forced to close for a short time this month as cyclone Yasi tore through the state. However, the group statement said it is expected that the loss of trade and assets will be recovered through insurance claims.
SFG has also funnelled a large amount of capital into the recent licence acquisition of intimate apparel label La Senza and the start-up of its operations, as well as the launch of City Chic's US online business in November last year, and Perlstein said he expects to see satisfying results on the back of these investments, although its too soon to tell what the second half will bring.
“We have pursued new growth opportunities to broaden our market reach through the acquisition of the La Senza licence and investment in e-commerce [and ] we expect to generate superior investment returns,” he said.
“However, with only six weeks under our belt, it's too early to form a view as to how trading will generally be in the second half. There is a new headwind that the apparel retailers will have manage, being the inflationary impact of higher yarn prices and increasing Chinese labour costs.”