Pacific Brands lifts sales for first time in five years

Textile, footwear and clothing company Pacific Brands has notched up its first rise in reported sales in five years but dashed investor hopes of any sustained return to better days after the company unveiled a $252 million write down linked to its struggling workwear division with more restructuring charges to hit in the second half.

Investors will also share the pain with the dividend payout ratio shaved to 55 per cent from 59 per cent last year.

Pacific Brands this morning reported a net loss after tax of $219 million for the first half of fiscal 2014 mainly due to the impact of impairment charges and restructuring costs for its workwear division and its footwear business.

The half-year loss is down from a $38.9 million profit booked in the previous corresponding period.

There would be more red ink in the second half, although that was tipped to be less than the quarter of a billion in write downs and abnormal charges booked in the December half.

Sales were up by 2.7 per cent to $656.3 million, the first sales growth since 2009, driven by a strong performance from its Bonds underwear business, up 20.4 per cent, and its bedding label Sheridan which had a 15 per cent lift in sales.

Pacific Brands’ pre-tax and write down earnings were down 14.1 per cent to $55.2 million, in line with analyst expectations. The company said this morning it expected its group EBIT to be down by a similar percentage to the first half of 2014.

The company, which owns popular consumer brands such as Bonds, Berlei, Jockey, Sheridan, Hush Puppies and King Gee, said the group’s operations expected a continuation of challenging and variable market conditions for the rest of 2014.

It said second half to date sales performance had been mixed by business with overall sales marginally up on the same time last year.

However, Pacific Brands warned gross margins were expected to be down in the second half mainly due to competitive pressures and currency issues with cost of doing business higher as it increased its investment in its retail arms.

Workwear was also continuing to suffer from higher unemployment and generally weaker economic activity across the country and its EBIT was expected to worsen in the second half and be down more than its first half drop of 39 per cent.

There would be further non-cash writedowns in the second half to continue to stabilise the company which a few years ago suffered a near death experience but these restructuring charges were expected to be less than the $252 million booked in the first half.

The company this morning declared a dividend of 2 cents per share fully franked, reducing the payout ratio to 55 per cent from 59 per cent in the first half of 2013.

Citi analyst Craig Woolford said the result showed there were positive signs the company’s investment in core brands such as Bonds and Sheridan was working.

”However, there is another headache for the company, which is the downturn in workwear,” Mr Woolford said.

”The share price is likely to be weak near-term given concerns about the ability to manage currency pressures and the challenge in restoring margins in workwear.”