Hallenstein shares drop to 4-year low as profit warning highlights ailing rag trade

Milford Asset Management's Mark Warminger: Apparel retailing is tough across New Zealand and Australia
Hallenstein Glasson 12-month price history (NZX.com)

Shares in Hallenstein Glasson [NZX:HLG] sank to a four-year low after the clothing chain slashed its first-half earnings outlook on tepid Christmas sales, in another sign the rag trade is struggling to recover from a protracted downturn.

The stock dropped 9.4 percent to $3.16, the lowest since December 2009, adding to yesterday's 18 percent slide when the Auckland-based company warned earnings will fall to between $6 million and $6.3 million in the six months ending Feb. 1 from $10.3 million a year earlier.

Last year the retailer had been among a group of clothing chains who gave profit warnings as tough competition in Australia put a squeeze on margins and as the warm winter kept consumer spending on apparel under wraps. Hallenstein chairman Warren Bell had warned of a possible further downgrade at the annual meeting on Dec. 12 unless sales picked up in the crucial peak summer trading period.

"This is the third profit warning they've had in a few months," said Mark Warminger, who helps manage $710 million in New Zealand equities at Milford Asset Management in Auckland. "Apparel retailing is tough across New Zealand and Australia."

Government figures showed a slump in consumer spending on apparel in the September quarter, with retail sales of clothing, footwear and accessories sliding 6.8 percent in the three months ended Sept. 30, the biggest quarterly fall since the series began in 1995.

Since then, consumer spending on electronic cards, which account for almost two-thirds of retail sales, increased in two of the last three months of 2013, and the New Zealand Institute of Economic Research's December quarterly survey of business opinion showed merchants reported the strongest retail sales since September 2002

Milford's Warminger said with the exception of outdoor equipment chain Kathmandu, the local retail sector is fairly unattractive for investors and still faces structural issues.

"Through the global financial crisis people got used to buying things in a sales period or at a discount," he said. "That's continued through for the last couple of years, even though the economy's recovered."

Apparel retail stocks struggled over the past year relative to the NZX All Index, which gained 15 percent. Shares in Hallenstein are down 35 percent over the past 12 months, Pumpkin Patch dropped 49 percent and Postie Plus shares halved.

Other retailers haven't fared as poorly, with shares in Warehouse Group up 21 percent over the past year, and Kathmandu climbing 61 percent.

One of the issues facing retailers is finding the balance between a physical store presence and online offerings, something Hallenstein chief executive said in November were part of a fundamental change in the business model. He is among retailers to have called for the tax department to be more stringent in collection goods and services tax on New Zealander's purchases from overseas websites.

(BusinessDesk)

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I think there may be a problem with the buying or stock picking - in Wgtn a lot of time/effort has probably gone into the new building project and I suspect that a survey which was run a few months ago by Glassons gave the management misleading information. They think they are in the very young person's line of country 15 - 25 but this group has a very high unemployment rate ( last time I looked 25%). What these people want and what they can afford is not symmetrical. The boomers who like to look good but don't always want to spend top dollar are the one to watch. I spent nothing in Glassons from October to now - usually I buy basics there - not this season though. Me and my age group earn around 150K plus pa - big mistake to ignore us: we have the money. I am often mistaken for a mother when I go to pick up my grandchild but I'm her grandmother - our slice of the population like to look good but we aren't stupid so we spread our spend through designers, overseas purchases, Kirkcaldies and boutiques etc but are willing to buy merino, tailored cotton trousers, decent basic t shirts etc from Glassons - retailers ignore this group at their peril - I buy online only because I can't get what I want here at a sensible price. BabyBoomers like 3/4 length sleeves in great solid colours - talk to staff in shops and they will tell you how many women want this but nobody listens so every season I send to an english firm and pay to buy 3 plus postage of 25 BP. Retailers should stop moaning about internet sales and wake up and smell the coffee! we may not look cool to your young marketing people aged 26 but we are/ should be the basis of your market if you want to make money: we've paid off our houses, raised our children and are decades from throwing in the towel.

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Fully agree with A Stewart

Retailers like Hallensteins ignore the market segment with money and go for the youth hype. I started some years ago to buy my trousers oversees - not because they are cheaper (though yes, they are) and better quality (oh yes, they are), but because I easily can get my size in the US off the shelf. NZ retailers don't bother to stock it and so anything I buy here I first need to bring to the tailor (and pay still another penalty for buying in NZ).

It is time the Hallensteins of the world stop whining about the need for penalising internet shoppers (hey, we typically pay GST overseas plus quite horrendous P&P) and do instead some solid marketing. If you offer the stuff people want without being too greedy - everybody will be happy to come back to you!

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Why appoint a finance person to the CEO role in an organisation so dependent on marketing & fashion?

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