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Hallenstein Glasson profit tumbles 26%

Monday 29th September 2008

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Hallenstein Glasson Holdings, the clothing chain operator, posted a 26% drop in annual profit and said earnings will decline in the first half of the current year as surging household costs sap consumer spending.

Net income fell to NZ$15.9 million in the 12 months ended August 1, from NZ$21.3 million in the same period a year earlier, the company said in a statement. Sales fell 3.2% to NZ$193.7 million.

Retailing "became increasingly challenging as the 2008 calendar year progressed," said Chairman Warren Bell. "The company's strategy for these times is to strive to maintain market share, reduce costs at every level in the business, and to maintain the strength of its balance sheet."

Figures this month showed New Zealand retail sales fell a more than expected 0.8% in July, on a drop in supermarket, furniture and autos. The Treasury has predicted three quarters of recession and the central bank is expected to continue to lower the official cash rate at each opportunity through 2008.

Profit exceeded the company's July forecast of NZ$15 million. Trading for the first two months of the current financial year has been mixed. Sales in Australia rose 5% while New Zealand sales fell 11%. Overall group sales are down 9%, the company said.

The shares traded unchanged at NZ$2.87 and have dropped about 25% this year.

Bell said tax cuts, interest rate cuts, and potential election promises may see the New Zealand retailing pick up through the end of this year. Still, the board "considers it unlikely the $9.969 tax paid profit achieved last year will be met."

He said the company is well placed to benefit from the impact of rising rents on rival retailers which may force them out of key positions in shopping malls and opening sites for Hallenstein.

"The impact of the CPI based annual rent increases that are being demanded by the major retail landlords cannot be underestimated," he said. "In some situations rents are ratcheting to unsustainable levels."

The company will pay a final dividend of 10 cents a share, making 27 cents for the year, down from 35 cents a year earlier.

By Jonathan Underhill

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