Australian slowdown shows up in transtasman company results

Friday 16th March 2001

By Peter V O'Brien

The Australian sickness is starting to affect listed retailers with operations on both sides of the Tasman.

The "profit change latest period" column in the table shows a slowdown in profit growth for retailer jeweller Michael Hill International and large-scale discounter The Warehouse Group. Interim reports from both companies blamed difficult trading conditions in Australia for the small increases in net profit.

Hallenstein Glasson's latest profit change is six months out of date, being related to the year ended August 1. The interim report for the six months ended February 1 should be available within the next three weeks.

It will be interesting to see what the apparel retailer has to say about its Australian stores and the trading climate.

While Michael Hill, Hallenstein Glasson and The Warehouse deal in very different retail items, economic and other pressures affect all retailers in the same way.

A general slowdown in the Australian economy, the introduction of GST in that country and the effect of the Sydney Olympic Games influenced profit growth for Michael Hill.

The company's interim report said most Australians were "glued to their television sets" during the two weeks of the Olympics. It also said the introduction of GST affected most Australian retailers.

The profit change figure in the table for Restaurant Brands is not an accurate reflection of the company's performance in the year ended December, because the result includes $4.17 million of non-recurring costs associated with the acquisition and conversion of the Eagle Boys pizza business.

Investors obviously ignored the non-recurring costs, lifting the share price 33.9% between September and last Monday, September being the last time The National Business Review examined the sector from an investment viewpoint.

That examination said constant increases in the price of petrol should be eating into consumer discretionary spending, although some people might cut back on the use of their motor vehicles.

It was also considered that downward pressure on the New Zealand dollar would lead to price increases for imported retail goods.

The trade-weighted index at that time was 48.54. It was 49.38 on Monday afternoon.

Monday was also the day on which the latest retail sales figures were released. They fell 0.3% in January, following a decline in the three months ended December.

A combination of the dollar's value and static retail sales suggests retailers of imported goods or those with high import content in terms of basic materials will be under pressure.

That view contrasts with a comment in Pacific Retail Group's report for the six months ended September 30. The report was issued on December 13, so was an indication of then-current trading.

Retail Pacific chief executive Peter Halkett said the appliance market was "quite buoyant," contrary to then recent reports about the state of the retail market in general.

Mr Halkett said the company achieved good revenue growth in newer categories such as computers, large screen television sets and communications products.

The six companies in the table are traditional retailers, taking Restaurant Brands fast foods business as a "traditional" activity and e-commerce retailers were omitted.

Pacific Retail had an investment in Orion Ventures, the parent company of internet retailer Flying Pig. The rest of Orion was acquired after the end of the half-year, that company was restructured and Flying Pig was sold.

Pacific Retail had a possibly intentional, possibly unintentional, musing comment about Orion which would "now be used to further PGR's own clicks and mortar strategy."

Should it have been "bricks" or did "clicks" have something to do with online retailing?

The current state of some companies operating in the online retail market suggest they would have little attraction for investors, although there was an interesting exception this week.

Furniture manufacturer Damba Holdings, now intending to use surplus funds for diversified investment purposes, bought 11% of online cosmetics retailer Beauty Direct and said it had an option to subscribe up to 2.8 million additional shares at 9c each, subject to shareholder approval.

Damba paid 8.5c a share for the 3.1 million shares represented in the 11%, so the buy would hardly break the bank, being $263,500, but it seemed an unusual initial diversification from furniture.

Retail companies' share price performance
Company	Price (c) 12.3.01	Price (c) 18.9.00	% change 9.00/3.01	2000/01 High	2000/01 Low	Profit change latest period %

A Barnett	83	100	-17.0	108	77	+57.5 (1)
Hallenstein Glasson	230	226	+1.7	242	175	+14.1 (1)
Michael Hill	385	300	+28.3	385	265	+3.3
Pacific Retail	140	150	-6.7	200	130	+27.2
Restaurant Brands	142	106	+33.9	157	100	-24.6
The Warehouse	565	595	-5.0	685	387	+7.7

(1) 2000 final; interim due soon

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