Rents fall, profit rises for retailer
The group is getting discounts of 15 to 20 per cent on lease renewals, and new stores it is looking to open.
"You don't get these rental reductions if everything is going well in the marketplace," Mr Perlstein said.
It is why the womenswear retailer is not offering any earnings guidance for the financial year despite sending its shares soaring on Friday with the news it expects its first-half profit to nearly triple despite flat sales.
Lower rent costs, along with supply chain efficiencies and higher selling prices of its clothing, were some of the factors that helped the group defy moribund conditions that are not expected to improve in the near future, according to Mr Perlstein.
Sales revenue in the group's 892 stores was up 2 per cent to $119.7 million, although the increase reflected an extra week's trading for the December half compared with the previous period.
"The economic uncertainties and structural changes affecting retail have not gone away, but we have pulled all the levers within our control to achieve sustainable improvements and our results reflect this," Mr Perlstein said.
The owner of Katies and Millers fashion stores expects its net profit for the six months to December 31 to be in the range of $17 million to $18 million compared with $6.2 million for the first half.
SFG said its gross profit margin improved by 477 basis points to 62.4 per cent. A further 150-basis-point improvement was expected for the current half year.
SFG shares have now doubled since October last year after jumping as much as 47 per cent during trading on Friday to a high of $1.03 before closing at 97¢.
Deutsche Bank raised its price target on the stock to 95¢ on Friday, saying the result "reflects company-specific factors including supply chain initiatives, as well as a generally reasonable Christmas trading period for specialty apparel."
Another women's fashion group, Noni B, engineered a surprise profit upgrade last January that led to the stock doubling over the past year, but the stock took a battering on Thursday after it disappointed the market with an earnings forecast 30 per cent below the first half.
JPMorgan says cyclical and structural issues will continue to affect the retail sector this year.
While consumers are "well positioned" compared with those in other countries, the broader picture is mixed, with rising unemployment and cost-of-living pressures to remain challenging, despite falling interest rates, JPMorgan said.
There are also structural issues such as the breakdown in the relationship between net disposable income, consumption and retail spending - income growth is leaking into debt repayment, online shopping and international travel.
But Macquarie Group said this week that conditions were improving for our retailers.
The "collapse" in volume growth for clothing, footwear, accessories and department stores in 2010 had finally eased, it said.
"Volume growth returned to the categories in March 2012 and we expect current growth rates will be maintained across 2013," a Macquarie Group statement said.
Frequently Asked Questions about this Article…
The article reports landlords are offering meaningful rent reductions — Specialty Fashion Group (SFG) is getting about 15–20% discounts on lease renewals and new stores. Falling rents signal weakness in the retail property market, but they also lower operating costs for retailers. For investors, rent trends can be an early indicator of retail sector health and can materially affect retailer profitability.
SFG attributed the profit rise to lower rent costs, supply‑chain efficiencies and higher selling prices for clothing. The group expects net profit for the six months to December 31 of $17–$18 million (up from $6.2 million previously). Sales revenue in its 892 stores was up 2% to $119.7 million, helped in part by an extra week of trading.
SFG said its gross profit margin improved by 477 basis points to 62.4%, with a further 150 basis‑point improvement expected next half. Higher gross margins typically mean a company is keeping more profit on each dollar of sales — here driven by price increases and supply‑chain gains — and can help support net profit even if sales volumes are weak.
SFG’s CEO Gary Perlstein said rental reductions reflect that the market is not fully healthy, and broader economic uncertainties and structural changes in retail remain. Because those external factors are still unclear, the group decided not to provide full‑year earnings guidance despite reporting a strong first half.
SFG shares have doubled since October and jumped as much as 47% in one trading session to $1.03 before closing at 97¢. Deutsche Bank raised its price target to 95¢, noting company‑specific improvements such as supply‑chain initiatives and reasonable Christmas trading for specialty apparel.
The article notes Noni B engineered a surprise profit upgrade in January that helped its stock double over the past year. However, the stock then fell after Noni B issued an earnings forecast that was 30% below the first half, showing the sector can produce volatile results across similar retailers.
JPMorgan highlighted ongoing cyclical and structural pressures: rising unemployment and cost‑of‑living strains, and a breakdown between net disposable income, consumption and retail spending. The article says income growth is being diverted into debt repayment, online shopping and international travel, which dampens traditional retail spending.
Yes — Macquarie Group said conditions appear to be improving, noting the sharp collapse in volume growth for clothing, footwear, accessories and department stores eased and that volume growth returned to those categories in March 2012. Macquarie expected current growth rates to be maintained across 2013.
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