Iconic apparel group Pacific Brands has slashed its full year guidance and flagged a strategic review to streamline the business.
The company, responsible for brands such as Bonds, Diesel and Berlei, has cut its guidance for the fiscal full year 2014 to between $90 million and $93m before significant items.
Simultaneously, Pacific Brands also revealed that the board has appointed Macquarie Capital Limited to undertake a strategic review.
An update on progress is expected to be provided with the full year result on August 26, 2014.
Commenting on its 2014 fiscal full year expectations, the group reiterated that the year 2014 has been one of “investment and transition”.
“The company has continued to invest in its growth strategies for each business, against which substantial strategic progress has been made in an increasingly challenged environment.
“At the time of its interim results announcement, the company expected group earnings before interest and tax (EBIT) before significant items for the second half to be down by a similar percentage to the first half . This implied full year EBIT before significant items of around $105 million.”
Specifically, Pacific Brands said a combination of challenging markets, declines in consumer sentiment and a warm autumn, which have been highlighted by other apparel and footwear retailers, have led to lower than expected sales growth and increased margin pressure.
Accordingly, fiscal 2014 EBIT before significant items is now expected to be in the range of $90 to 93 million with sales growth of three per cent versus the prior year.
Underwear and Sheridan Tontine sales for the year are expected to be up but EBIT is expected to be materially down.
In underwear, this is driven by wholesale sales and gross margin being significantly lower than expected.
Brand Collective sales are also expected to be down, with earnings broadly in line with last year. Working capital is expected to increase at June 30, 2014 relative to the prior year.
This has been driven by significantly higher inventory levels due to: the inflationary impact of currency; investment in retail expansion, adjacent categories and acquisitions; and sales being more volatile and lower than expected.
Additionally, Pacific Brands warned that the combination of reduced earnings, higher working capital and capital expenditure, and additional restructuring costs is expected to lead to an increase in net debt at June 30, 2014 versus the prior year, to approximately $250 to 260 million.
Actions are being taken to mitigate earnings pressure, according to the company.
“Performance improvement and cost reduction initiatives which were already underway across the group have been accelerated and expanded, including decentralisation of certain group functions to reduce the role and cost of the corporate centre in order to transfer more end-to-end cost accountability to the business units.
“One-off cash restructuring costs to implement these initiatives are now expected to be approximately $25 to 30 million (before tax) for the six months ending 30 June 2014.”