Despite strong half-year results, leading apparel supplier and retailer Gazal Corporation Limited has said the financial future looks dim, due to rocketing prices from suppliers and increased Chinese labour costs.
Gazal, which manages brands such as Calvin Klein, Van Heusen, Bisley and Trent Nathan, today reported an after-tax profit of $6.5 million for the half year ended December 31, 2010 – a 25 per cent increase on like figures for the previous corresponding period.
The results, listed on the Australian Securities Exchange (ASX) also recorded a 26 per cent rise in pre-tax profit for the period to $9.5 million – exceeding guidance figures provided in October 2010.
Group sales revenue was up 13 per cent to $146.5 million, despite a competitive retail environment in the past six months, brought on by increased interest rates, unseasonal cool weather and overall consumer caution.
A strong in-stock position by workwear label Bisley, as well as increased interest in Van Heusen business suits and dress shirts, has translated into solid sales growth for the company's wholesale sector. Improved gross margin management and ongoing overhead savings, particularly in warehousing and distribution costs, also saw profit margins improve across the board for the wholesale side of the business.
Sales growth in the direct-to-consumer business, however, took a blow from the tough retail conditions, with profit margins declining as higher than normal markdowns were taken to clear a slow moving seasonal inventory.
Despite pleasing results in overall profit, Gazal doubts its future financial results will shine as bright.
According to the report on the ASX, the company expects “that consumers will remain cautious and the very competitive retail landscape will continue. Margins in the wholesale business are likely to be impacted in the second half by increases in cost prices from suppliers due to record high levels of cotton and yarn prices and increasing Chinese labour costs. In relation to full-year earnings for the financial year 2011, considering the above at this stage, it is difficult to project a stronger performance this year than the previous year”.