Almost 3 years ago, Specialty Fashion bought Rivers from founder Philip Goodman for the bargain basement price of $4 million, but has struggled to turn the brand around. However, recently, the company continued to focus on restoring Rivers to profitability while rejuvenating its core brands, growing their shoes online sales and largely taking advantage of the market for plus-size clothing fashion.
By doing all of this, they saw a net profit for the six months ending in December 2015 to $8.8 million, which is a jump of 50.6%. This underlies their earnings before you take tax and depreciation and amortisation lift to 19.5% or $27 million. This beat everyone’s market forecasts for the brand.
An article in the Sydney Morning Herald published this article about this surprising turn around:
Black is back in fashion at clothing retailer Specialty Fashion, which is on track to return to profitability this year by halving losses at budget chain Rivers.
The chain has also offset margin pressure on its core brands by taking plus-size label City Chic to new overseas markets.
Losses at Rivers halved to $5.2 million, offsetting slightly weaker earnings from the core Millers, Katies, Autograph and City Chic women’s wear brands, where gross margins were crunched by the weaker Australian dollar.
Group sales rose 5.2 per cent to $434.3 million as comparable store sales grew more than 5 per cent for the fourth consecutive half-year and online sales soared 59 per cent to $39 million, representing 9 per cent of revenues.
Specialty Fashion shares, which had fallen 28 per cent in the last 12 months, jumped more than 30 per cent to 70¢ before closing up 8¢ at 60¢.
“The key thing from our point of view and investors generally is the rate of turnaround in the Rivers business,” said Celeste Funds Management analyst Callum Sinclair.
“If that trajectory continues it’s a good result for the business.”
“The comp store sales growth trends were good and they seem more confident about a recovery in Rivers,” said Citigroup analyst Craig Woolford.
Chief executive Gary Perlstein issued no guidance for 2016, but said he would be “disappointed’ if Rivers did not continue to improve in the June-half and was confident Rivers would start trading profitability in 2017.
“Hopefully the improvements we’ve made with Rivers we’ll repeat that performance in the second half,” Mr Perlstein said.
In the first year, shipments of new winter season stock were delayed until the end of winter, adding to a mountain of aged stock that had to be cleared by aggressive discounting.
Losses from Rivers wiped out half the earnings from the core brands last year, dragging the group to a bottom-line loss and forcing the company to withhold dividends.
Analysts and investors are expecting a $13 million profit rebound this year, from a loss of $4.5 million in 2015 to an underlying net profit of about $8.5 million. Specialty traditionally loses money in the June half.
Mr Perlstein said the company would continue to focus on restoring Rivers to profitability while rejuvenating its core brands, growing online shoes sales and exploiting a gap in the market for plus-size fashion by taking the City Chic brand to new markets in the US, Britain and the Middle East.
After launching last year in 60 Nordstrom stores, City Chic has been launched in 90 Macys stores, has entered the UK through Arcadia Group offshoot Evans and is opening stores in the Middle East through a licence agreement.
No interim dividend was declared in 2016, even though the company has net cash of $1.4 million.
Read more: http://www.smh.com.au/business/retail/specialty-fashion-profits-rebound-as-losses-halve-at-rivers-20160222-gn0lt3.html#ixzz41iLW3AO0