Briscoe Group counts on Santa to deliver

Friday 10th September 2004

Briscoe Group's first-half result doesn't bode particularly well for investors who are getting tired of 18 months' worth of bad news.

The company did manage to improve its gross margins during the six months to July but the trade off came in the form of declining sales, resulting in lower earnings margins for the period.

Net profit of $6.72 million for the half year, almost a third down on the previous corresponding period, was in line with expectations and provided little cheer for analysts.

The problem now, according to analysts, is that even a flat full-year result will require second-half growth of about 22%.

That, says First NZ Capital, would be optimistic given the forecast economic headwinds for the retail sector.

Briscoe's management put on a brave face, attributing the opening of new stores to the increased overheads and lower sales volumes.

Managing director Rod Duke said the new stores would show benefits in the second half, when 60% of the company's sales are produced anyway.

He remained comfortable with analysts' consensus forecasts of a profit of $22 million for the full year. The company last year reported net profit of $23.6 million.

Briscoe's share price has declined nearly 50% since the end of 2002, going from $2.75 to around $1.39.

Duke told this year's annual meeting the company had recognised it "must wean ourselves off our deep-discount strategy - this approach is unsustainable."

Forsyth Barr noted the company had made improvements and the reduced inventory levels at balance date were encouraging.

An improved working capital position and lower cash tax paid helped push operating cashflow up $2.9 million to $10.7 million.

However, it was still early days as Briscoe implemented its new strategy and re-built its brands, Forsyth Barr said.

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