Iconic fashion house Pacific Brands has suffered a $219 million loss for the first half of 2014.
The company, which owns brands such as Bonds, Berlei and Superdry, reported a net loss after tax of $219.0 million for the six months to December 31, 2013.
Pacific Brands attributed the loss to significant items of $252.0 million (after tax) comprising: $254.8 million of non-cash write-downs (after tax) mainly in Workwear and Brand Collective and cash restructuring costs of $11.1 million (after tax); net of a profit on sale of the Wentworthville property $10.8 million (no tax effect) and a favourable $3.0 million tax settlement.
Before significant items, earnings before interest and tax (EBIT) was down 14.1 per cent to $55.2 million and net profit after tax was down 15.1 per cent to $33.0 million, primarily due to lower wholesale sales (particularly in Workwear and Brand Collective) and margin pressure across the group.
Reported sales for underwear segment separately, however, were up 10.0 per cent to $242.5 million and reported EBIT was $48.0 million, including a gain on the sale of the Wentworthville property of $10.8 million.
Key brands (Berlei, Bonds, Explorer, Jockey and hosiery brands) represented 88 per cent of underwear sales and grew by $25.9 million or 13.9 per cent, driven by the growth brands of Bonds and Berlei.
Bonds was the star performer for the sector, with sales up over 20 per cent, closely followed by Berlei which saw a slaes lift of over 15 per cent.
The company's Explorer brand was also up 9.5 per cent due to increased distribution in wholesale.
Jockey was strong in New Zealand but declined overall due to weaker domestic sales in the discount department store channel.
Hosiery brands (eg Razzamatazz), by comparison, represented 6 per cent of underwear sales and were down by 18.8 per cent primarily due to increased private label competition, especially in supermarkets.
Sales across the company's Brand Collective were heavily impacted by exited brands and businesses. As previously announced, the Stussy and Naturalizer licences were not renewed, and the business had decided to exit the Diesel licence which was deemed “unprofitable”.
Reported sales for the Brand Collective were down 12.9 per cent to $108.3 million and reported EBIT was a loss of $12.3 million due to impairment and restructuring costs. EBIT before significant items was down 70.4 per cent to $0.9 million.
In Workwear, reported sales were marginally up overall (up 0.9 per cent to $178.3 million). Reported EBIT was a loss of $248.1 million due mainly to the impairment of goodwill and brand names, and restructuring costs. EBIT before significant items was down 39.3 per cent to $11.4 million.
Commenting on the results, Pacific Brands CEO John Pollaers said the coming year will be one of “investment and transition”.
“Our strategy is to progressively stabilise earnings by making disciplined investments to return the business to sustainable sales and earnings growth. There are clear signs of improvement in underlying performance and momentum is building across a number of brands and businesses.
“We are particularly pleased with the performance of Bonds, Berlei and Sheridan, each of which grew sales materially on the back of increased investment in brands and retail.
“However, the pain being felt in the Australian manufacturing, construction and resource sectors is flowing through to businesses like ours.”
Pollaers added that the company will now move to action a comprehensive review and has identified certain segments, products and customers that are now marginally profitable driven by aggressive pricing and over capacity in the market.
However, he said that that the near term outlook remains challenging.
“We are very pleased with our progress overall, but the full benefits of our investments will take time to materialise in the face of significant headwinds, so as we have said previously, earnings performance will be affected in the short term.”
Going forward the company confirmed that group EBIT is expected to be down by a similar percentage to the first half of 2014 (c.14 per cent) . Further restructuring costs are expected in second half of fiscal 2014 as the company continues to take action to reduce costs and improve performance.
Lower FX rates are expected to adversely impact margins, inventory balances and cash conversion from the fourth quarter of 2014 and continuing into fiscal 2015, notwithstanding the company’s actions to mitigate through a combination of price increases, mix improvement, sourcing benefits and cost reduction initiatives.