Postie Plus reels from outsourcing woes, burns through cash
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Postie Plus Group, the retailer whose shares have plunged 38 percent this year, is reeling from a wider first-half loss as it deals with major problems at its outsourced distribution centre, burning through cash in the process.
The Auckland-based retailer made a net loss of $1.8 million, or 4.61 cents per share, in the six months ended February 3, from a loss of $775,000, or 1.94 cents, a year earlier, it says in a statement. Earlier this month it said it was bracing for an annual loss and would post a pre-tax loss from continuing operations of $2.6 million in the first half.
"The impact on store operations of distribution difficulties is the fundamental cause of the significant first half loss," chairman Richard Punter says. "The directors realise that he challenge of taking PPGL to higher volumes and increased sales in the second six months is one still to be overcome and the annual result will be affected by impacted margin."
The thinner margins caused Postie Plus to breach its banking covenants and it is still in talks with its lenders. That is the second time in as many years that the retailer breached the conditions of its bank loans, after missing its interest to earnings before interest and tax ratio covenant of 1.5 times for the rolling 12 months to April 2012.
The retailer increased its borrowings to $13.8 million as at February 3, lifting its gearing ratio to 88 percent from 54 percent a year earlier. The extra $4 million in debt covered an outflow of cash in the period, with the retailer seeing a net cash outflow of $2.2 million from its operations and a net cash outflow of $1.4 million.
At the end of the period, Postie Plus held cash and equivalents of just $43,000.
Last year Postie Plus outsourced its distribution systems and processes to a purpose-built centre in Mangere as part of its shift to Auckland, where it saw greater opportunities.
The company is working "intensively" with its logistics and distribution provider, who has lifted its resources to address the situation, it says.
The shares last traded at 15 cents, valuing the company at $6 million.