Briscoe Group

Michael Hill’s relatively subdued mood at today’s annual meeting was a realistic reflection of the state of the retail sector. Sales are depressed and most companies are hoping for, rather than forecasting, a good Christmas period.

Hill told shareholders - rather tongue in cheek - that he is optimistic about the next few months because he expected individuals to stop buying yachts and purchase jewellery instead.

Figures in the following table show that the listed retail sector is depressed, particularly as far as the New Zealand operations of NZX listed companies are concerned.

On Monday Briscoe reported that group sales for the quarter ended 26 October were down 11.2% compared with the same period in the previous year, with Homeware sales off 10.2% and Rebel Sports 13.3%. Managing Director Rod Duke said August and September were poor but October was a bit better.

On the same day Hallenstein reported an 8% fall in NZ sales for the 2 August to 31 October period and noted that “trading conditions in New Zealand have been more difficult than Australia”. Finally, The Warehouse told the NZX this morning that group sales for the quarter ended 26 October were down 2.1% with Red Sheds’ sales off 1.6% and Warehouse Stationery 5.6% lower. The company reaffirmed that it expected consumer spending and trading conditions to remain subdued for some time.

These year-on-year sales figures compare with the country’s 5% annual inflation rate. Retail sales are usually subdued during a general election campaign but this election has been exacerbated by wall-to-wall media coverage of the international credit crisis.

Most retailers are highly dependent on the Christmas period and this year will be particularly important because of the depressed trading throughout most of 2008. The retail sector, particularly small mom and pop outlets, will face serious financial difficulties next year unless consumers open their wallets between now and 25 December.

Retail landlords must focus less on the bottom line and more on their tenants' needs or risk being lumbered with a portfolio of empty stores, say leading retailers.

High interest rates, a sluggish housing market, unprecedented fuel costs and inflated food prices have hit consumers hard, leaving all "but a lucky few" retailers juggling high rents and low sales. But with the gloom showing no sign of lifting soon, pressure is mounting on landlords to adapt to market conditions and work with retailers to see out the tough times.

Speaking at the Property Council's annual retail conference in Auckland, Stephen Alach, the general manager of surf retailer Amazon, said too few landlords appreciated how hard retailers were being hit by a downturn that extended from before Christmas. "All bar a few [landlords] don't look at anything except the dollars. They won't last if they continue with this ducking and diving attitude to tenants," he said. "Rent demands stay the same while some retailers are dealing with the reality of sales being up to 60 per cent down [on last year]. If the landlords don't react soon they are going to lose a lot of tenants."

Though retail giants like The Warehouse Group and Briscoe Group could survive the harsh times, independent retailers are more likely to "take their losses and walk away" rather than risk parting with more and more cash, Mr Alach says.

"It will be the landlords who feel the squeeze when tenants pull the plug and walk away. There needs to be a better understanding if we are going to get through this."

Landlords needed to spend more and think outside the box to draw consumers away from their comfy couches and plasma screens into the shopping environment, he said. This meant generating new store concepts with tenants, being more realistic about rental returns, and looking 10 years ahead instead of just one or two years.

"When you're caught in a wave, you can't breathe - you feel like you're choking. That's how it is for retailers at the moment, and that's how it will be for landlords if they don't react."

According to Statistics New Zealand, 15 of the 24 retail sectors had lower sales in the March quarter than in the last quarter of 2007. Those who are highly reliant on discretionary spending had a particularly tough year. Appliance stores experienced a 15 per cent fall in sales, furniture and flooring took an 11 per cent hit, and clothing lost 6 per cent.

New Zealand Council of Shopping Centres president Evan Harris said landlords needed to take a more "constructive" approach and "realise some of the pain" that retailers were suffering. However, John Bougen, director of national retail property developer Prime Retail, said the answer lay in fostering new tenants. "There will be demands for rent reductions. It's a call we will all be forced to consider over the next few months. The question is, `How long will it last?' Longer than a bank guarantee," he said. "[Landlords] need to consider fostering new tenants. They may not be the tenants you want in the good times. In the 1990s [recession], we had them on short-term leases so [that when things improved] they could be moved with dignity."

Pumpkin Patch shares are continuing to surge in value after multimillionaire Kathmandu founder Jan Cameron disclosed a 6.3 per cent interest in the children's clothing retailer.

The shares are now up 12 cents, or 8.5 per cent, to $1.52 from the four-year low of $1.40 hit on Friday shortly before the reclusive Tasmanian resident Cameron disclosed her holding. Cameron is the second wealthy retail investor in a few months to disclose a holding in Pumpkin Patch. The majority shareholder in Briscoe Group, Rod Duke, has built a 10 per cent stake.

Pumpkin Patch chairman Greg Muir said today he was "comfortable" with the new investors. "It is two well placed New Zealand investors who obviously recognise that the company is undervalued at the moment." On Cameron, Muir said: "She's been building that [stake] over many months - we've known about that. We haven't had any dialogue with her at all. It is for her to discuss. We are quite comfortable. We've got no issues with it."

While the moves by both Cameron and Duke will lead to speculation that one or both may seek to assert influence on the future running of Pumpkin Patch, Muir said he believed both might be passive investors. Neither had sought a seat on the board at this stage. "They've certainly made no representations to us in that respect, but I can't answer what their intentions are."

The moves from both the investors come as Pumpkin Patch, a former sharemarket darling, has seen its share price pounded as investors worry about apparent speed wobbles the company is hitting in its US and British expansion. There is also concern about its stock levels, which have risen sharply this year and its debt levels, which may now be as high as $95 million from virtually nothing two years ago.

Cameron sold Kathmandu to private equity partners Goldman Sachs JBWere and Quadrant in 2006, reportedly for about $275 million. Subsequently she has built a 15 per cent stake in Postie Plus. She also recently bought the Arbuckle's stores from Postie Plus. In addition she has opened five homeware stores in New Zealand under the brand name Nood (New Objects of Desire).

Pumpkin Patch's shareholder register is now getting crowded. The biggest individual shareholder is still believed to be South African investor Setar Motani, with about 12 per cent - though this shareholding has reduced in the past few years. Another investor who has reduced his shares since the company floated in 2004 is managing director Maurice Prendergast, who currently owns about 6.2 per cent, down from 8 per cent a few years ago. Fisher Funds Management has recently sold down its stake to around 6 per cent as well.

Pumpkin Patch shares were listed in mid-2004 at $1.25 a share. They rose to as high as $4.95 on a wave of enthusiasm about the company's moves to become a global brand. However, in more recent times the expansion into the US and Britain has appeared to hit speed wobbles.

Market expectations had been for a profit this year of about $22 million to $23 million, down from $27.6 million. But it is likely analysts will further trim earnings forecasts after a recent Asian investor roadshow presentation by the company that talked about tough conditions in Britain and the US.

New Zealand's biggest retailer, the Warehouse Group has revised downwards expected annual after-tax earnings by about 10 per cent.

The key contributing factor was a marked downturn in consumer spending since the latter part of May, which had significantly reduced the company's sales and margin expectations for the remainder of this financial year, the company said today.

After-tax earnings for the year ending July 27 were now expected to be between $84 million and $88 million, including reversal of warranty provisions of $7.2 million. The previous range was $94 million to $98 million.

For The Warehouse stores, sales for the month of May were 4.8 per cent ahead of last year on a same store basis, reflecting an expected improvement in performance following a difficult third quarter. Customers responded well during the period to a strong seasonal offer in both apparel and home products, the company said. But consumer confidence and retail spending had deteriorated markedly in recent weeks in response to increasing inflationary pressures on fuel and cost of living.

The company's June and July sales were now forecast to fall well below previous expectations. At Warehouse Stationery sales for May and June month to date were 7.7 per cent below the same period last year.

The Warehouse downgrade comes one day after number two retailer Briscoe Group warned shareholders to expect up to an 80 per cent drop in half year net profit after tax.

In an update to the market yesterday, the operator of Briscoes Homeware, Living & Giving and Rebel Sport stores said it expected net profit after tax for the six months ended July 27 to be between $2 and $3 million. The group had posted a $10.5 million profit for the same period last year. Managing director Rod Duke said like other retailers, it has been experiencing extremely difficult trading conditions, with consumer confidence at its lowest in 17 years. Duke expected the challenging times to continue, with second half results expected to be lower than last year's. But the percentage decline would not be nearly as large as the first half's, he said. Briscoe shares ended yesterday down 11c at 99c.
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As retail trouble spreads across the country, one big firm has announced expansion plans. Hardware retailer Bunnings Warehouse, owned by Australian conglomerate Wesfarmers, it has six new stores planned, which should mean 500 new jobs.

Company general manager Brad Cranston said the fifth of its Auckland stores will be built in Westgate, Waitakere City. "We are pleased to announce plans for this new store for West Auckland. Westgate and the wider West Auckland region is certainly an area of constant growth," Crantson said in a press release.

Bunnings Warehouse has recently unveiled development plans for four further stores in Wellington, Upper Hutt, Gisborne and Dunedin. "The New Zealand market is extremely competitive," said Cranston. "But we have a proven and robust business model that enables us to deliver value to customers. The success of recent new stores in Christchurch and Auckland's Mt Roskill is encouraging and fuelling our commitment to continue at least open three new stores per year," he said.

Cranston said that while plans and locations are not finalised, Bunnings see the Hawke's Bay, Taranaki, South Auckland and Auckland's North Shore as potential areas for further stores.

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.

Retailer Briscoe Group has warned its annual tax paid profit could be 15 per cent below last year's $26 million.  The result would depend particularly on the buoyancy or otherwise of the retail market during the Christmas period, group managing director Rod Duke said today.

"The competitive trading conditions experienced throughout the first half of this year have continued into this third quarter.  "Although total sales and margin were higher than for the same period last year, the group did not generate the improvement we were anticipating, with the negative same store sales performance offsetting the positive impact of our new stores," Mr Duke said.  "If the recent trading performance continues for the remainder of the year, our full year tax paid profit could be as much as 15 per cent below the $26 million achieved for last year."

Releasing its third quarter figures, for the 13-week period to October 28, Briscoe said sales were $87.6 million, 8.1 per cent higher than the corresponding period a year ago.  On a same store basis, the group's sales for the period were 0.6 per cent below those for the third quarter of last year.  Homeware sales increased 7.7 per cent to $59.2m while sporting goods sales increased by 8.9 per cent to $28.4m. On a same store basis, homeware sales increased by 1.2 per cent for the quarter, while sporting goods sales decreased by 5.5 per cent.

The October quarter sales figure took unaudited group sales for the year-to-date, starting January 29, to $277.9m, an increase of 11.9 per cent above the first nine months of last year.  Homeware sales increased 11.4 per cent during the period, while sporting goods sales increased 12.8 per cent.

Two new Briscoes Homeware stores in Pukekohe and Upper Hutt and the opening of Living & Giving at Albany, on Auckland's North Shore increased homeware store numbers to 52.  Sporting goods store numbers increased to 32 during the quarter with the opening of new Rebel Sport stores in Wairau Park, Pukekohe and Timaru.

A further two stores were due to be added before the end of the year with the opening of Living & Giving stores in Manukau and Nelson.  Briscoe shares were down 1c in mid-morning trade to $1.50, having ranged between $1.45 and $1.80 in the past year

You can't keep a top retailer down. Since 1990, when Rod Duke bought control of Briscoes, he has transformed it from a small chain of loss-making shops offering a sparse range of tawdry goods into one of the country's most upmarket and successful retailing groups.

It seems as if the homeware stores which bear the Briscoe name may be reaching the end of their strong growth phase, which has seen their development into a chain of 37 attractive shops in major centres. It plans to open only one new store a year over the next few years till it reaches between 40 and 45.

But that doesn't mark the end of Duke's ambitions. He opened six new Rebel Sport stores in the past year, bringing the total to 27, and intends to open a further one or two over the next few years until he reaches about 35. Rebel Sport's Australian operations are in the throes of a takeover battle, with major institutions holding out for a higher offer, although this does not affect New Zealand. In 1990, Duke negotiated a limited franchise agreement with Rebel Sport Australia, with the first store opening in Auckland in 1996. He gained exclusive rights to the Rebel Sport brand in this country in 2005.

Duke says there is great potential in the Living & Giving chain, which he bought from Eric Watson late last year. This chain of nine stores had never performed well, and was said to have been operating around break-even at the time of the sale. Duke believes they have a lot of promise, and plans to open 11 more in the next two years till he gets to 20.

He also intends to expand the upmarket Urban Loft chain, after the success of the first one in Auckland. A second could be opened soon in Wellington or Christchurch.

The ongoing expansion plans are being encouraged by signs that, after the odd rough patch, the company has developed successful strategies to win customers in a small, highly competitive market.

The group has just completed another successful year - regarded as a good effort after a difficult and testing second half. Other retailers who have reported challenging trading - mainly because of poor, cold early summer weather - include The Warehouse, Hellaby Holdings, owner of Hannahs and No1 Shoe stores and the BBQ Factory. In contrast, Michael Hill International, who had been finding business difficult earlier in the year, surprised the market by saying it had a bumper Christmas.

Clothing and footwear shops seem to have been the hardest hit. This seems to have affected Rebel Sport - the part of the group most exposed to selling sports apparel and shoes. Duke said: "When it is snowing in the South Island it is very difficult to sell outdoor shirts and shorts at Rebel."

There are indications the group undertook a sales programme to sell such seasonal stock and maintain market share. Sales at Rebel Sport rose by 5.4%, and Briscoes Homeware sales were up 9.8% in the latest period.

The group reported a full-year tax-paid profit of $26m, broadly in line with a forecast it made in January. Sales were up 8.3%, mainly due to new store openings, and a 10.4% increase in retail space, or selling area. Like other retailers, Briscoes is facing a substantial rise in rents: Carolyn Holmes of ABN Amro estimates rent per square metre rose by 4.3% in the past financial year, and she is forecasting this will rise another 3% this year.

Duke warned after the result that the group faces another tough year. He hopes to consolidate profitability after what he said had been the most challenging three years the company had ever faced. Immediate worries were petrol prices, household expenditure, interest rates and the housing market.

Rodney Deacon of Goldman Sachs JBWere says the outlook for earnings growth in the short to medium-term looks subdued, driven mainly by factors including lower household consumption, the kiwi dollar and a slowing retail environment. Goldman Sachs JBWere has a short-term market perform and long-term hold recommendation on the stock valuing it at $1.66.

First NZ Capital believes the company will report similar earnings this year and has a target price of $1.72 on the shares. ABN Amro rates it a hold with a target price of $1.84. UBS has a neutral recommendation and a price target of $1.71.

Briscoe Group managing director Rod Duke is promising a "good result in a testing period" for the full year even though the company's fourth-quarter sales were hit by poor weather.

The company, owner of the Briscoes, Homeware and Rebel Sport chains, announced yesterday that fourth-quarter sales to January 28 were $123.7 million. This was a 6.7 per cent improvement on the same period a year ago. However, same-store figures measuring the like-for-like performance of existing outlets were down 0.4 per cent on a year ago.

"Notwithstanding the unfavourable retail environment, we remain confident that the full-year profit will be at least the same as last year's result," Mr Duke said.

Last year's after-tax profit was $25.2 million. Briscoe will announce its full profit figures for the latest year on March 16.

Forsyth Barr analyst Guy Hallwright said the sales figures for the latest quarter were a little better than he had expected. But as predicted, Rebel Sport had been affected, like all apparel and footwear retailers, by the cold start to summer.

"The interesting thing to see in the full results will be what has happened to their margins."

He believed the company would have had to undertake price discounting to clear stock, but expected that the impact of the slow start to summer would have been confined to the last quarter. "It is still performing well, notwithstanding the effects of this quarter."

The company's homeware sales increased 7.7 per cent to $84.4 million for the quarter, while Rebel Sport's sales rose 4.5 per cent to $39.3 million.

Total sales for the year were $372 million, a rise of 8.3 per cent on the $343.5 million reported for last year. Homeware sales increased 9.8 per cent during this period, while Rebel Sport's sales increased 5.4 per cent.

On a same-store, same-days basis, the group's sales for the 12 months ended January 28 were 2.7 per cent ahead of the same period last year. Homeware same-store, same-days sales increased 4.2 per cent, but Rebel Sport's sales declined marginally.

During the year the company bought nine Living & Giving gift and homeware stores and opened a prototype upmarket Urban Loft homeware store in Auckland. Mr Duke said the Living & Giving stores, acquired in November, were exceeding their budgets. The Urban Loft store had performed to expectations. Its performance would be monitored till after Easter. Then the company would decide on possibly opening more of the stores in other centres.

Briscoe shares were unchanged at $1.76 yesterday.

WELLINGTON, Sept 14 (Reuters) - New Zealand homeware and sports retailer Briscoe Group Ltd. on Thursday reported a 21 percent rise in first half net profit on the back of increased sales.

The company said net profit for the six months to July 30 was NZ$12.01 million ($7.85 million) compared with NZ$9.93 million a year earlier.

Last month, Briscoe Group said its first half sales had risen 8 percent rise after better performances at its homeware and sports chains, with same store sales 3.2 percent ahead of the same time last year.

Gross margins rose to 41.28 percent from 40.05 percent a year earlier.

The company said the start of the second-half of the year had seen some slight softening in sales.

"While we are confident of further improvement to the bottom line, we don't expect the increase over last year for the second half to be as significant as that achieved for the first six months," Group Managing Director Rod Duke said in a statement.

The company competes with The Warehouse , KMart and the privately-owned Farmers department stores.

Shares in Briscoe, majority owned by managing director Rod Duke, last closed at NZ$1.60. So far this year they gained 29 percent compared with an 4.6 percent rise for the benchmark NZSX-50 <.NZ50>.

The company declared a dividend of 3.5 cents a share.

Briscoes boss Rod Duke may be about to rue the day he passed on buying the Stirling Sports franchise.  Duke looked at adding the management company behind the successful 29-store chain to his Rebel Sports business last year when it was up for grabs in a fire sale sparked by the financial troubles of its then owner, Mark Taylor.

Analysts thought at the time that Stirling looked like a good way of expanding the Rebel empire but Duke passed on the deal. 

Stirling Sports was snapped up by Christchurch's Anderson family who have been busy reorganising it.  The family have been overseeing a revamp of the franchise stores but the real test comes next month when Stirling opens a "big box" format store at Tower Junction in Christchurch which is at least twice the size of existing stores.  The Anderson family already has a big foot in the sporting goods camp. It also owns Lane Walker Rudkin, the world's largest rugby jersey manufacturer and home of the Union brand.

Mark Anderson said the aim was to open 12 mega centres around the country and build its chain of smaller mall stores up to 40 over the next three years.  While the big stores were heading towards Rebel Sport territory, Anderson said the offering would be different.  "We don't want to go head-to-head with Rebel Sport. We want to be much more service-orientated."

New branding is also on its way and the plan is to refurbish as many stores as possible.  All the big clothing and footwear brands would be included such as Adidas, Nike and Puma, and the stores would also sell "hard items" such as cricket bats and running machines.  But the aim was to move away from slow moving items such as snooker cues and golfing equipment.  He said the stores would be staffed by "mad keen" sports people who would give specialist advice.

There are 29 Stirling Sports stores around the country run by owner operators.  The chain was founded by franchise retailing legend Colin Taylor, who opened his first specialist sporting goods store in Auckland in 1964.  The franchise management business was sold in the aftermath of the collapse of his son Mark Taylor's retail empire which was built around the Building Depot chain.  Taylor over-extended himself by buying the Building Depot which was put into liquidation with debts of $8.4 million. Mark Taylor was made bankrupt.

Rod Duke could not be reached for comment on the Stirling plans.
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CAPTION:
New venture: Stirling Sports is to open a "big box" format store at Tower Junction in Christchurch next month. Photo: Kirk Hargreaves Opportunity missed Rod Duke