Apparel group Gazal has confirmed a significant drop in after tax profit for the first half of 2014, as “economic uncertainties” take their toll.
The company revealed after-tax profit for the six months to December 31, 2013 was down to $4.9 million, a 32 per cent decrease on the previous corresponding period.
Gazal achieved sales revenue of $148.1 million for the period, an increase of one per cent on the prior period.
Revenue in the direct-to-consumer segment increased by 4.9 per cent to $93.2 million, primarily due to new outlets which grew by 10 to 63.
Like-for-like sales growth in the direct-to-consumer segment for the six months, however,was flat with December sales falling short of expectations. The wholesale segment recorded mixed results, with “some sales growth” achieved in the department stores channel.
Revenue and earnings in the workwear and uniform business was impacted by the NSW Health Uniform contract which ended in the previous reporting period.
The company said it was decided not to retender for this contract as some of the new conditions introduced by NSW Health would have rendered the contract unprofitable going forward.
Commenting on the results, Gazal said figures were “in line” with the guidance provided to shareholders in November last year and expects the second half to look much brighter for the group.
In particular, the company said the joint venture which it signed with PVH Brands Australia in October 2013, in particular is expected to buoy results for the second half.
“PVH Brands Australia joint venture successfully commenced on February 3, 2014, thereby realising a one-off additional consideration of $6.5 million which will be booked in 2H14.”
As previously reported on ragtrader.com.au, the joint venture sees PVH Brands Australia gain the rights to operate, manage and distribute Calvin Klein brand products in Australia, New Zealand and other island nations in the South Pacific. The license term is 20 years.
As part of the tie-up, PVH Brands acquired Gazal operated Calvin Klein Underwear distribution and retail business for $9.4 million, made up of net tangible assets of $2.9 million and an additional consideration of $6.5 million.
Providing an update on the joint venture, Gazal said the early integration and execution have been relatively smooth and operations are successfully underway.
“The joint venture not only gives the company a unique partnership with one of the world’s leading apparel powerhouses in PVH, but it also achieves longevity on global megabrands such as Calvin Klein through the 20 year rights the [deal] has secured.
“It is expected that over time, the joint venture will expand its operations to include additional Calvin Klein product categories, many of which are not in the Australasian market today.”
Looking ahead, Gazal said its second half to date sales performance has been mixed in both the direct-to-consumer and wholesale segments.
“We expect the challenging market conditions in the Australian retail sector wesaw in the first half to continue. Given this, and the continued roll out of new outlets, underlying earnings will continue to be challenging compared to last year.
“However, taking into account the $6.5 million additional consideration arising from the sale of the CK Underwearbusiness, total net earnings are likely to be well up on the previous year.”
Based in Sydney and listed on the Australian Securities Exchange, Gazal is a leading apparel supplier and retailer in Australasia, marketing both company owned and licensed brand names such as Calvin Klein, Van Heusen, Bisley, Nancy Ganz, HoldmeTight, Bracks, Midford and Trade Secret.