Postie Plus Group has agreed to a non-binding offer to sell its school uniform operation SchoolTex for $9 million.
The move is expected to reduce its $21.1 million debt load and increase year-round margins by selling off the seasonal business.
The sale awaits shareholder approval at the Postie Plus Annual Shareholders Meeting in Christchurch on December 20 as well as the completion of due diligence and formal documentation.
The buyer is a “well-known New Zealand company that wishes to keep its identity confidential until the agreement becomes unconditional”, according to a Postie Plus statement.
Chief executive Richard Binns cited the company’s $21.1 million debt load as one of the challenges to growing its clothing and health and beauty product ranges.
“The proposed sale of SchoolTex is a substantial step towards resolving this issue,” Mr Binns says in a statement.
SchoolTex is a seasonal business and does not drive incremental sales or lift the average “basket size” in Postie Plus stores, he says. It also places significant capital demands on the business, requiring investment in inventory ahead of the peak season.
“The SchoolTex sale is forecast to cut PPGL’s debt load to $12.2 million. It will open up valuable real estate within our stores for products that have the potential to drive increases in average basket size and deliver comparable or higher margins year round," he says.
The company says opening store space for higher margin items could generate an additional $5 million in sales to the core Postie brand which would offset lost SchoolTex revenue.
Meanwhile, improvements in operating costs and a better product mix will provide a lift to earnings, Mr Binns says.
Last month the company announced a net loss of $13.17 million for the year-end 2013. Shares opened at 9 cents this morning, down from 12 cents a year ago.
Postie Plus [NZX: PPG] operates more than 80 stores across provincial and metropolitan New Zealand and employs 650 workers. The company was founded in 1909 as a family-based business on the West Coast of the South Island.