Mining slowdown hits PacBrands
Pacific Brands has become an unlikely victim of the mining slowdown, with a fall in jobs in construction and resources leading to weaker sales of its workwear brands such as Hard Yakka.
The company, better known for its clothing label Bonds, said the sudden and material decline in sales in its workwear division was big enough to push down its full-year profit, as it faces challenging market conditions with "no near-term signs of improvement".
Chief executive John Pollaers said the company was facing an uncertain year in a "difficult and ... unpredictable consumer and economic market".
He said early signs of weakness in the first quarter, particularly in its workwear division, meant net profit and earnings before interest and tax would be lower than 2013. "There's a strong correlation in our workwear business to economic conditions, particularly employment and employment churn."
The company faced investors on Thursday at its annual meeting in Melbourne, where it warned of "material" declines in its first-half profit. Mr Pollaers said the decline in workwear, which also includes the Dunlop and King Gee brands, reflected low jobs growth in the mining and industrials sectors.
"We've seen more and more companies in the resources and industrials sector very focused on managing costs," he said. "Employment growth and turnover remain low, the resource sector continues to slow and governments continue to reduce their spending."
He said consumer confidence was showing no signs of improving more broadly, despite key indicators showing otherwise. "There have been some surveys that have suggested an uptick in consumer confidence, but as a lot of my colleagues have communicated, there's no sign of that coming through.
"I think it's going to take some time. I'm hopeful, but I don't think at this stage you can count on it."
The slump in sales ends a rare period of optimism for Pacific Brands, which came close to crisis point in 2012 when it reported a loss of $451 million. In August, it delivered its first profit in three years after embarking on a five-year turnaround strategy.
Workwear accounts for about a third of Pacific Brand's business.
Deutsche Bank has revised its profit forecast for Pacific Brands down 7.5 per cent, driven by sales revisions across all divisions.
Its shares fell 2¢ to close at 72¢.