Pacific Brands under review

Pacific Brands' new chief executive David Bortolussi addressed shareholders for the first time at the company's annual meeting but his words didn't fill us with confidence. He said the year ahead would be characterised by a 'continuation of challenging and variable market conditions'. The company posted a net loss of $225m for the year to 30 June.

Bortolussi also said the company would carry on with its extensive restructure by discontinuing poorly performing brands. As we explained in What would you pay for Pacific Brands? on 22 Apr 14 (Hold – $0.54), closing or, better yet, selling the laggards is sensible given the company's significant headwinds such as higher operating costs and large retailers promoting home brand products, both of which will adversely impact Pacific Brands' margins and ability to repay its uncomfortable $250m of net debt.

In addition to its existing headwinds, the company must now also overcome the burden of a lower Aussie dollar, which pushes up the cost of purchasing its inventory. The stock has fallen 18% since Retail round-up: Results 2014 from 9 Sep 14 (Hold – $0.535) but, in light of the gloomy outlook, may not be sufficiently undervalued to invest. UNDER REVIEW.