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Margin focus keeps SFG earnings in black

rivers

Specialty Fashion Group chief executive Gary Perlstein has described retail conditions as the toughest he’s ever seen after taking a  comparable store sales decline of two per cent to the ASX yesterday.

Perlstein said that management made a conscious decision at the start of the period to play to a cost reduction strategy, realising that driving comp sales through sluggish conditions late last year would be challenging.

The result was a 1.9 per cent increase in gross margins, driving a 12.7 per cent increase in EBITDA to $30.4 million.

“Retail is exceptionally tough, the toughest I’ve ever seen it,” Perlstein told Inside Retail. “Regrettably I think it’s just becoming the new norm, what we’ve experienced of late will continue.”

The group didn’t make any specific forecasts for FY17, but Perlstein said the group will need to speed up its omnichannel transition to keep up with mounting market pressures as the company awaits news on a possible $135 million acquisition.

“The strategy we have is right, but the factor will be the speed at which we will have to continue pressing it,” he said.

“That’s what’s catching us head on, the pace that we’ve had to transition to an omnichannel retail model has become faster and faster.”

The focus will see SFG focus more intently on online sales momentum and the rationalisation of its portfolio of 1066 stores. Online sales increased by 28 per cent over the period, and now represent 10.6 per cent of total revenue.

The transition has been particularly helpful for the group’s struggling acquisition, Rivers, which went back into black in the first half – helping to drive 36.8 per cent growth in net profit for the group over the pcp.

SFG have invested heavily in product quality, inventory and marketing spend improvements, moving the brand from traditional to digital advertising.

“We’ve moved to build a platform that we can market digitally, we’ve had very good online growth in the brand,” Perlstein explained.

Online investment will continue in the second half for the entire group, with plans to re-launch each of the e-commerce platforms in the portfolio in the next six months. A partnership with SAP Hybris has already seen two brands re-launched, the most recent of which was Crossroads less than two weeks ago.

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