The price represents a miserable return for shareholders but represents a case of something is better than nothing with uncertainty around the future of the Godfreys chain.
Godfreys has been in decline since 2006 when the then 151-strong store chain was acquired for $300 million by Pacific Equity Partners and CCMP Capital Asia.
Johnson’s Arcade Finance will buy back the Godfreys chain for around $13 million if shareholders follow the recommendation of the retailer’s board.
Johnson will effectively take control of the beleaguered vacuum and cleaning goods chain for the third time if the deal is finalised, after selling to the private equity firms in 2006, before buying it back five years later ahead of the $78 million float on the Australian Stock Exchange in 2014.
Godfreys has fared poorly since its public float with successive CEOs chopping and changing strategies, particularly in establishing its direction on store locations and sizes and its hybrid corporate and franchise business model.
The capitulation of the board of directors follows a disastrous three month period of dramatic sales falls and impending losses for the 2018 financial year.
The financial problems are understood to have breached banking covenants, leaving the retailer facing the prospect of calling in administrators if the takeover does not succeed.
Johnson, who is 99 years of age, faces a challenge in restructuring the Godfreys chain that is certain to require the closure of stores and a review of merchandise and marketing as well as a decision on whether or not to continue with its franchise system.
Short-term pain for Baby Bunting
The future looks somewhat brighter for two other retailers who have endured some trading challenges in the past year.
Baby Bunting and the retail brands owned by the Specialty Fashion Group will no doubt face continued headwinds short-term but seem to be headed for better days ahead.
Baby Bunting has announced its third profit downgrade in seven months as it battles the fallout of from the collapse of the collapse of three rivals, Baby Bounce, Bubs Baby Shops and Baby Savings.
The collapse of the three chains with stores across New South Wales, Queensland and Western Australia has flooded the market with stock liquidations at deep discounts ordered by receiver managers.
Baby Bunting has also been impacted by the collapse of Toys ‘R’ Us in the United States, which has led to uncertainty about the future of the Australian subsidiary which has around 45 stores, each with a Babies ‘R’ Us section.
Investors have reacted negatively to the latest profit downgrade by Baby Bunting, cutting the share price below its 2015 listing price on the Australian Stock Exchange of $1.40 for the first time.
Baby Bunting is expecting its annual earnings will be flat for the current financial year at around $23 million, after what it calls unprecedented discounting and stock clearances following the collapse of other retailers in the baby goods and babywear category.
The retailer has also suffered an estimated $2 million in lost sales due to the shortage of stock in a popular car baby seat line.
Baby Bunting’s more bullish profit forecasts had been based on comparable store sales growth of 4.7 percent in the third quarter.
However, fourth quarter sales have fallen markedly in the first six weeks and are currently tracking at negative 2.5 per cent with transactions impacted by the clearance activity in the category.
While Amazon and other online retailers and competitors such as department store and discount department stores are also chasing sales and trying to defend market share, Baby Bunting’s CEO, Matt Spencer, remains confident of the chain’s prospects once the category stabilises.
Spencer said Baby Bunting will repair flagging margins by introducing more exclusive products in key merchandise categories and through better prices and trading terms from suppliers, an increase in direct imports and further development of private label and exclusive product ranges.
Spencer concedes Amazon is a significant player in the baby goods market in the United States but he is confident Baby Bunting can defend its business in Australia and continue to expand its store network and its own online sales platform.
Baby Bunting currently has 44 stores around Australia with a further outlet planned for regional Queensland this financial year and between four and eight new store openings in plans for FY2019.
Baby Bunting’s online sales are currently around 8.4 percent of total revenues , representing around $1.2 million after growth of 56 per cent in the six months to December 2017.
Spencer says the business is performing well, given the fallout from the current category consolidation, and is well positioned for future growth with a longer term target of 80 stores.
Uncertainty continues around the future of the Toys ‘R’ Us business which has attracted some potential buyers despite losses of more than $100 million in the past seven years in the Australian operations.
Baby Bunting is therefore likely to be impacted by the shakeout in the category and the ongoing struggles of the department and discount department store retailers into the next financial year but would be expected to be in a strong position once the category stabilises.
Specialty Fashion strikes deal
Specialty Fashion Group (SFG) has also suffered as a result of increased competition from international retailers, consolidation and ongoing subdued consumer spending.
SFG, which is listed on the Australian Stock Exchange, appointed external consultants to review its brand portfolio and options after a succession of trading losses, including $8.4 million in the 2017 financial year and a massive fall in its share price.
The options explored included a trade sale of the entire business, the divestment of some of its retail brands and a recapitalisation of the business supporting a turnaround strategy under CEO Daniel Bracken, a former Myer executive recruited to replace long term CEO, Gary Perlstein.
IRW reported last February that Noni B was one of the potential buyers of all or part of SFG and the two companies confirmed on Monday that a deal had been struck.
Noni B will acquire the Millers, Katies, Crossroads, Autograph and Rivers retail brands from SFG for $31 million that will be funded by a equity capital raising of $40m.
Noni B was rescued from its own financial struggles in 2014 by Alceon Group, which has a 40 percent shareholding in the listed entity.
Noni B will become the largest multibrand fashion retailer in Australia when it adds the SFG retail chains to its existing portfolio that includes Noni B, Table eight, Rockmans, BeMe and W Lane.
The acquisition will give Noni B a network of more than 1350 stores and will lift annual sales for the group from around $300 million to about $1 billion.
The deal will leave SFG with just one retail brand, City Chic, for which an offer had been lodged by the private equity investor, Anchorage Capital Partners, in April.
The conditional $100 million offer by Anchorage Capital Partners for the City Chic and Autograph chains did not proceed.
The board of SFG believes it can grow the City Chic brand in Australia and overseas with current retail exposure in US department stores, Nordstrom, Bloomingdale’s and Macy’s.