Kirkcaldie & Stains

Briscoe Group expects a potential fall in first half profit of more than 50 per cent as a retailing malaise sets in and says other firms face a similar prospect.

The sporting goods and homeware retailer, widely seen as a barometer of the industry's general health, yesterday reported a 9.66 per cent drop in same store sales for the first trading quarter, ending April 27.  But the announcement came as Wellington listed department store Kirkcaldie & Stains reported a near 13 per cent increase in half-year profits on the strength of a stellar summer. However it also warned of darker days ahead.

Briscoe managing director Rod Duke said rising interest rates and petrol prices were putting the squeeze on households, which would affect the wider retailing industry.  "Being relatively the first cab off the rank, you'll find this particular trend that's being shown in our numbers will be relatively widespread."

Unaudited sales for the quarter were $90.3 million, 6.4 per cent lower than for the same quarter last year.  Sporting goods sales were hardest hit, falling 10.3 per cent to $29.5 million, while homeware decreased by 4.3 per cent to $60.7 million. On a same store basis, sporting goods ales were 15.1 per cent down, while homeware fell 7.1 per cent.

Duke said the retail market for this quarter was "markedly more challenging", with a continuation of the difficult trading conditions experienced during the latter part of last year.  The group expected to report a significantly lower profit for the half year ending July 27, with an estimate of between $5 million and $7 million - down from last year's $10.5 million.

Kirkcaldie & Stains, meanwhile, has overcome the sluggishness reported by the likes of The Warehouse and Briscoe, reporting a net profit for the six months ending February 29 of $829,000, an increase of 12.8 per cent. Sales were up 2.4 per cent, while revenue was up 1.9 per cent to $24.4 million, aided by strong apparel sales.  Managing director John Milford said a hot summer helped fashion sales. A larger gross profit was achieved by making sales at normal margins during the early part of the fashion season. More product was also sourced directly from overseas.

But he was circumspect on the outlook.  "I think we are going to have to work a lot harder to maintain that sort of performance.  "My perspective is that customer confidence is being eroded ... the focus within everything seems to be about the economic conditions.  There are people I could argue who actually have more money to spend because there are people in the country who actually have savings and are earning more interest. Obviously factors like petrol increases and food increases do hit everyone."

An unseasonably long and warm autumn could also work against them, he said.

Forsyth Barr retail analyst Guy Hallwright said while retailers did not all perform in the same way, a drop in sales of 4 per cent - like with Briscoe's homeware business - was a possibility across all store types. He said clothing retailers were very dependent on seasonal weather patterns.

Shares in Briscoe Group closed down 11c at $1.12, while Kirkcaldie & Stains ended up 5c at $2.85.

STILL KICKING ...
The tyres, that is. At least that is what we are being told about the long-running sale of Restaurant Brands.

The company promised a definitive call on sale prospects by the end of the month and, despite delivering its full audited result yesterday, chairman Ted van Arkel maintains he won't talk about the sale process until April 30.  It could be that final talks are going down to the wire, although there are few in the market who view the situation with that much optimism.

The last potential buyer - likely to be CVC Asia Pacific - must surely be tempted to drop out and come back for another go on its own terms when a few issues have been resolved.  The share price has already sagged to pre-takeover talk levels and may sink further if the sale process is declared a failure. That would make the prospects for a hostile bid pretty good.

It is also likely that prospective buyers would rather wait and see if the turnaround at KFC can be maintained, and if there is any hope of a similar revival for Pizza Hut, before they make a commitment. If the company can continue to make some operational progress then revived sale prospects might not be so bad in the long run.  Restaurant Brands shares closed at 92c yesterday.

ENDANGERED SPECIES
A small announcement from the NZX this week could mean big changes to the way shareholders get the lowdown on a company's progress.  Basically, the NZX is bringing its regulations in to line with changes to the Companies Act so that - in theory at least - big glossy annual reports could be a thing of the past.

One reader was quick to point out all publicly listed companies should be encouraging shareholders to opt for electronic reports - from an environmental and financial perspective.  But companies also needed to ensure that the electronic reports are user friendly: "Simply reproducing a multi-column report for reading on a computer monitor is a sign of laziness." Which is a fair point, although there are also plenty of shareholders out there who still like to get the full report in the mail.

The economic practicality of printing reports for all shareholders will vary from company to company.

But, as the NZX's Elaine Campbell points out, shareholders will have the right to tell companies what they want. Making that clear in no uncertain terms is the key to making this change work.

AIR NZ EFFECT
It's great to see a soaring local stock impacting on valuations in Australia. It's usually the reverse of course, with anything the Rinker takeover deal to the Coles furore prompting New Zealand investors to reassess relevant values on this side of the Tasman.

But Australian commentators seem to have noticed that Air NZ's stellar run is making the Macquarie-led consortium's bid for Qantas look a bit ordinary.

The Sydney Morning Herald this week noted that Qantas shares had risen 28 per cent since rumours of the private equity bid began to circulate last November.  But Air NZ shares have doubled in the same period, the paper notes.  Ironically, it was the takeover bid for Qantas that was originally tipped one of the reasons for the resurrection in Air NZ's market value.

But a strong operational performance combined with some relief on the fuel price front seem to have left that theory back on the tarmac. In fact Air NZ has now risen 158 per cent since it bottomed out at $1.08 last August. Shares closed up 12c at $2.79 yesterday.

AIRPORT WARS
Meanwhile, still on an aeronautical theme, Infratil - owner of Wellington Airport and enthusiastic "would-be" developer of Whenuapai Airport in Auckland's north west - is more than a little miffed at the news that Auckland International Airport (AIA) has been funding local opposition to the development.

Infratil director Tim Brown has found a story in community newspaper the North Shore Times which says AIA has provided Whenuapai Action Group with $19,000 to fight plans for the airport.

Infratil has long expressed interest in developing the old airforce base at Whenuapai as a second commercial airport for the region.

Brown says he now intends to check the legality of the funding relationship. "It is hard to see how it would be in the spirit of the Commerce Act to be funding a vociferous group opposed to the establishment of a competitor," he says.

"At least the AIA team are not the Brethrens, so are probably not praying for divine intervention on their side."

GPG PURCHASE
Guiness Peat Group has built a war chest of more than $700 million which it is likely to spend on a new acquisition, concludes Goldman Sachs JBWere analyst Rodney Deacon in his latest report on the listed investment company. Deacon has taken another look at the group in the light of last week's sale of the Australian Wealth Management (AWM) business - which has delivered the investment company a cool A$267 million.

The timing of the AWM sale was in itself a little surprising, Deacon noted. He bases his view on the belief that the Australian wealth management industry is generally considered to be in a growth phase with potential for further consolidation. AWM was also still in the process of integrating the Select Funds business and the corporate superannuation business it had acquired from Zurich Financial and Genesys. "We think it is questionable whether the full benefit of these transactions has been fully factored into the share price," Deacon writes.

And no reason for the sale was provided by GPG management. The only logical reason for sale is a belief on GPG's part that Australian equities are near a peak.

The question now is what will GPG do with the proceeds - which take the amount of cash on the balance sheet to more than $700 million by Deacon's calculation. The Coates business is now largely self-funding and none of its other businesses need the capital. That makes a fresh acquisition the most likely option.

GPG shares closed up 1c at $2.33 yesterday.

TESCO IN THE WAREHOUSE RACE ...
The race for The Warehouse (due to get the starter's gun today, Commerce Commission willing) looks set to get more crowded.

Well-placed market sources say investment bank Merrill Lynch has hit town, hired by British grocery giant Tesco to scope out the Red Shed auction.

Tesco has long been tipped as potential buyer, with rumours dating back to a supposed meeting during Stephen Tindall's UK visit last year.

But just how Tesco might fit into a potential bidding war remains unclear.

Also this week, sources in the Australian media linked Tesco to a Woolworths bid for Coles, so it looks increasingly like there is some big-picture stuff going on behind the scenes. Tesco management has been highly public about its aggressive international expansion plans in the past year. Foodstuffs and Woolworths have been in the starting blocks for months.

Today is the Commerce Commerce's third deadline for ruling on who is allowed to buy. But considering what's at stake it would be thoroughly unsurprising if the runners are once again left waiting for another month.

Meanwhile, in the calm before the storm ... trading in The Warehouse shares has slowed to a near standstill. The share price has drifted sideways from a $7.11 close last Friday to yesterday's close of $7.10.

OLD DOG DOES NEW TRICKS
Stalwart Wellington retailer Kirkcaldie & Stains sometimes looks like a bit of a throwback on the NZX.

It all seems a bit Are You Being Served? in these days of global retail conglomerates. But Kirks is obviously doing something right because its shares hit a three-year high this week. On Tuesday the company reported its half-year profit had more than doubled to $747,000, allowing it to resume paying dividends.

Strong Christmas and summer trading, including the end of season sale, boosted sales by 11.5 per cent to $22 million, the company said.

The store has expanded from its traditional Lambton Quay home and now has a cuisine store in Wellington's Harbour City Shopping Centre.

It's also worth noting that the canny Sir Selwyn Cushing and his family investment company H&G took a five per cent stake last year.  And a group of Wellington property investors trading under the name LQ Investments has held a 19.9 per cent stake since March last year.

So it could be that new strategic stakeholders have provided management with some fresh motivation.  The shares closed up 10c yesterday at $3.10.

It's been part of the shopping landscape for nearly 150 years. Now Wellington department store Kirkcaldie & Stains faces turbulent times. Sue Allen meets new managing director John Milford.

JOHN MILFORD'S time behind the top desk at Wellington's flagship department store, Kirkcaldie & Stains, has been short, but he already has a plan.

Actually, he has three -- short, medium and long-term. No doubt shareholders will be all ears.

Last month, they received the painful news that profit had dropped almost 70 per cent to $290,000 for the six months to February. Worse still, dividends were being suspended.

But it is not just shareholders who are interested in how Kirks fares -- anyone and everyone in Wellington has a view on the store.

Too cramped, great shoes, brilliant sales, wonderful Christmas shop, out of touch, too much make-up and cosmetics, brands being cut without reason. Everyone has something to say about the store.

Mr Milford is undaunted by the task, but then he has more than 30 years' experience running department stores and retail businesses.

In the short-term bag is a "back-to-basics" approach, with inventory control, investment in a new point-of-sale system and improved customer service at the top of the list.

Once you know stock control is largely paper-based, Mr Milford's desire to get a firm grip on what's coming in and going out becomes clearer. He hints that some merchandise areas are likely to be dropped and some expanded.

Christmas 2006, traditionally Kirks' flagship annual event, pulling in people from far and wide, will be massive, he says. Events will also be held "that will be working towards the goal on inventory".

The first event is today -- a "never-to-be-repeated" $6 million clearance sale of back stock at Shed 11.

Small changes are already appearing: the cluttered women's clothing department has been recarpeted, racks cleared and discipline restored.

Among the medium-term issues is grappling with what seems to have been Kirks' problem for a while, a lack of focus on who its customers are and what they want to buy.

Kirks has responded by stuffing more and more into limited space in the hope someone will want to buy something.

It has 45,000 names on databases across the various departments, but the information is not centralised.

No detailed customer research has been done in the past five years.

"Do we know, as a business, who our customer profile and target is? No, not as well as we should do, and we are working on that."

The size and demographics of the Wellington region mean Kirks will always need to have fairly wide appeal, but change is needed.

What Mr Milford has described as "little gems" will also help Kirks in the medium term -- offering better financial products, better marketing and more exclusive brands, and upgrading its Internet business.

Kirks' bottom line gives an idea of how bumpy the ride has been for the store and its shareholders.

In 2003, profits were down 13 per cent to $1.42 million, in 2004 they were down 22 per cent to $1.1 million and last year they bounced back 9 per cent to $1.2 million.

Mr Milford describes the latest half year's 69 per cent profit fall as "not acceptable".

Though he will not comment on his predecessors, he says the results show the lack of a robust plan and a solid foundation.

"This is a terrible analogy, but I'll use it," he says.

"If you look at this business you can't just put a bit of rouge and lipstick on it and expect it to look really good. You've got to clean the skin, lay the foundation and do the makeover properly."

Michael Curtis, one of a group of property investors that in March seized 19.9 per cent of Kirks through LQ Investments, says they are "watching with interest for an improved result over the next year".

LQ's property expertise will be put to good use renegotiating Kirks' two leases soon.

They and the board are also looking at maximising return from the neighbouring Harbour City Centre, which Kirks bought for $29 million in 2002. The rental income from that building has helped Kirks stay afloat.

Mr Milford's arrival certainly provides a sense of history being repeated.

Kirkcaldie & Stains was established in 1863 by John Kirkcaldie, a Scotsman who had served his apprenticeship as a draper, and Robert Stains, an Englishman who had worked in the retail trade in London.

Their first shop was on the historic Bank of New Zealand site, now Old Bank Arcade. They moved to the present site in Lambton Quay in 1868.

Like them, Mr Milford learned the trade from the bottom up. He began his retail career in 1971 as a management trainee with Allders department stores in London. When he left in 1994, he was a director in charge of customer service for 44 stores and 7000 workers.

Allders went into administration in a blaze of publicity last year, but Mr Milford has only good things to say about his time there and credits the company with teaching him how to be a good shopkeeper.

He moved to New Zealand with his family after being shoulder-tapped by the head of Farmers in New Zealand, Terence Delaney.

He is now a fan of what he calls New Zealand's "egalitarian state".

"To have someone on the shop floor saying: `Hey, John, I don't think we're doing this very well', was a bit of a culture shock for me."

Mr Milford joined Farmers as a regional manager for Auckland, but after a management reshuffle he took over as general manager of its 63 stores.

He then spent four years at Eric Watson's Pacific Retail Group, eventually rising to chief executive of Pacific Retail Ltd, running its Bond & Bond, Retail Brands, Noel Leeming, Big Byte, Computer City and Living & Giving stores.

Though he admits he knows nothing about cars, his next move was to car parts retailer Repco, and from there to Kirks.

It was those early days as a management trainee, working in every department from sales tills to loading dock, that taught him the discipline of being a good retailer.

It also gave him what he describes as "empathy" with staff. It would be a mistake, however, to confuse that with sympathy for those who do not perform.

He has come from a background of targets, goals and tangible measurement. "I am a firm believer in performance; in what gets measured gets done," he says.

"If you don't give people objectives and they don't clearly understand them and if you don't help and support and train them, why would you wonder when they (the goals) don't get achieved?"

Kirks does not have a performance-pay system but one could hazard a guess it soon will have.

The real bottom line is that the more profitable a business is, the better it is for everyone, he says, allowing a business to reinvest, hire more staff and pay more to those it has.

His pay package has a healthy incentive-based element and he will have his work cut out to deliver.

But is he confident he can turn the business round? "Yes, definitely.

"My long-term plan is for this business to be here in 50 years' time and for Kirks to stay as a centre of excellence for retailing." AT A GLANCE

John Milford

1954: Born, Portsmouth, England
1965: Cowplain Boys School, Hampshire
1970: Highbury Technical College, Portsmouth
1971: Joined Allders (operators of British department stores) as a management trainee.
1994: Moved to New Zealand to join Farmers
2000: Chief executive of Pacific Retail
2004: General manager of Repco Australia
April 2006: Joined Kirkcaldie & Stains as managing director

Married: to Janet since 1975, has two sons, Jack and James.
Car: None at the moment but wants to buy a Porsche (not new)
Book: Biography of Winston Churchill by Roy Jenkins
Pastimes: Fishing, shooting, reading, history and cars