Clothing manufacturer Pacific Brands has announced a steep drop in group sales for the first half of the 2012 fiscal year, with expectations that the second half will be worse.
The company, which owns and operates iconic brands such as Bonds, Berlei and Mossimo, today reported sales for the group at $684.7 million, down 19.6 per cent compared to the previous corresponding period ($852.1 million).
The results were further impacted by a net loss after tax of $362.4 million for the six months to December 31, 2011 – due to the “non-cash write-down of the goodwill in the underwear business and restructuring costs associated with the Pacific Brands 2010 transformation program”.
Individually, the company's underwear brands also fared badly, with total sales for that sector down 16 per cent. The company said that despite these results, Bonds recorded growth in a weak market, but approximately two-thirds of the decline in sales can be attributed to the Kmart transition.
Despite an increase in sales for outerwear brands Diesel, Mossimo, Superdry and Stussy, overall Pacific Brands' homewares, footwear and outerwear sector suffered significantly with total sales down 31.2 per cent to $272.9 million.
Footwear & sport sales were down due to the loss of sales to Kmart, which particularly affected Grosby and Volley, while sales for Slazenger and Dunlop also declined further due to reduced distribution.
Sales for workwear labels in the Pacific Brands stable fared better, with sales slipping just 1.1 per cent to $194.5 million. Wholesale sales, particularly for workwear label KingGee benefited from increased demand from the resources sector, with strong sales across Western Australia and Queensland.
The lacklustre figures follow a year of flat sales, as reported in the group's results for financial year 2011, in August last year. At the time, total group sales fell by 7.3 per cent, with cash flow dropping 41 per cent and total net profits plummeting by $131.5 million.
However, Pacific Brands CEO Sue Morphet said the most recent sales dive was expected, due to tough trading conditions and the Kmart transition.
“As expected, sales performance was impacted by difficult trading conditions and the Kmart transition. We have partially mitigated the impact of the increase in the cotton price on margins and managed our cost base, while maintaining strong cash flow,” she said.
“Excluding Kmart, Bonds' sales were up. Workwear's sales, driven by KingGee, were flat despite reduced business confidence.”
Going forward, Morphet said the company will look to diversify its channels to the market, and focus on online initiatives which are also performing well for its brands across the board. She also said that the company will look to complete the integration of Bonds' and Omni Apparel's front-end operations, which will see the complete integration of the underwear group's end-to-end business system – including international sourcing, in-market supply chain, front-end business operations ands supporting functions.
However, Morphet added that the outlook for Pacific Brands remain challenging, with underlying sales expected to drop further due to continuing weal retail conditions and changes to the customer base, and EBIT and net profit after tax also expected to be “materially down” for the second half of fiscal 2012.
“The impact of earnings is expected to be partially mitigated by a continuing focus on reducing costs of doing business, however, results will be largely determined by trading conditions,” she said.
“[Despite this], due to the transformation and restructuring work completed, the company remains well-placed to deal with the challenged ahead of it and then to benefit from any improvement in market conditions.”
As previously reported on ragtrader.com.au, Pacific Brands received an unsolicited approach earlier this year, from private equity outfit KKR regarding a possible acquisition of the entire issued capital of the company.
Morphet revealed that since that time, the company has received additional enquiries in regards to a buyout of Pacific Brands and while the company is considering these offers, “there is no certainty that any agreement will be reached with any party”.