UPDATED: Hallenstein Glasson expects 20% profit fall

UPDATED: Hallenstein Glasson [NZX:HLG] warns its half-year net profit after tax will probably be down 20% on the same period last year, due to increased competition and currency headwinds.

Its shares fell to $2.85, the lowest level since September 2014.

The clothing retailer reports its total group sales for the six months to February were $112.4 million, an increase of 1.3% over the prior corresponding period.

Sales in December – its key trading month – increased 2% over last year. 

However, it says gross margin for the period is about four percentage points below the same period last year, due to the lower exchange rate and competitive influences. 

More competition has come in the form of several overseas retailers opening up stores in Auckland, including the popular Topshop store on Queen Street.

Hallenstein Glasson is also facing an increasing battle for the consumer dollar with offshore online retailers.

Chief executive Graeme Popplewell says net profit after tax for six months to February is expected to be between $6.6 million and $6.9 million, a 20% decrease from last year’s result of $8.64 million.

But he says the balance sheet remains strong, with stock levels under control.

A full earnings statement for the group – which includes the Hallensteins, Glassons and Storm clothing stores – will be released on March 23.

The directors declared an interim dividend of 13.5c  per share, one cent less than last year, to be paid April 15.

Forsyth Barr has an underperform rating on the stock, due to gross margin risks from the fall in New Zealand dollar against the US, and structural pressure from online retailers.

“The recent material depreciation in the NZ dollar and Australian dollar against the US dollar creates a headwind for retailers, placing margins in the spotlight,” says analyst Chelsea Leadbetter in a research note.

“Currency movements impact all industry participants as respective hedging rolls off [and] consumers are likely to be more resistant to higher prices in a globally competitive world.”

Worst performing stock today
In early trading Hallenstein Glasson shares touched $2.85, the lowest level since September 2014, making it the worst performing stock on the S&P NZX All Capital Index today. It was recently down 9.9% at $2.90.

A weaker kiwi dollar means the company has to pay more for clothing imported from manufacturing countries such as China. The kiwi dollar has fallen about 11% against the greenback, the transacting currency for many offshore purchases, in the 12 months ended February 1. Retailers such as Hallenstein are also facing increased rivalry as consumers buy more over the internet from companies with lower margins.

"Sales were not too bad but the margin equation is not good and I would imagine that the weakness in the New Zealand dollar has a fair amount to do with that," says Grant Williamson, a director at Hamilton Hindin Greene.

"While exporters are doing very well on the back of the weak New Zealand dollar, importers like Hallenstein suffer quite a bit. The market hasn't taken kindly to that announcement."

Still, Mr Williamson says Hallenstein had faced hits to their earnings in the past and recovered.

"They are pretty smart managers, they have been in the apparel game for quite some time so they normally manage to turn around that performance and then we see the share price improve, so I think some investors will be looking to pick up some bargain basement prices on Hallenstein," he says.

(With additional reporting from BusinessDesk) 

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