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Hallenstein Glasson wary of margin squeeze in second half

Wednesday 12th December 2018

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Hallenstein Glasson Holdings is wary of a margin squeeze in the second half of the year in what it describes as tough trading conditions in New Zealand and Australia. 

The clothing chain won't provide earnings guidance until after the all-important summer sales period but did offer a note of caution to shareholders at today's annual meeting in Christchurch. The shares fell to a 10-month low $4.20, down 3.5 percent, or 15 cents. The stock has slumped 25 percent since the end of November. 

"The outlook for the second half of the year remains uncertain as increasing costs - such as fuel, freight, electricity etc - and the lower New Zealand and Australian dollar puts pressure on our trading margins," chair Warren Bell said in notes for the meeting.

"We will however remain focused on improving our market share and customer experience in the New Zealand and Australia fashion apparel markets in which we operate, and keep a tight control over our operating costs," he said. 

In September, Hallenstein Glasson reported a 58 percent increase in annual profit, having shed the unprofitable Storm retail chain and imposed stricter cost controls. Since then, sales growth has slowed in the second quarter.

Paymark figures this week showed a slow start to Christmas spending, despite cheaper petrol prices freeing up cash for spending elsewhere. Government data this week showed credit and debit card spending on apparel rose a seasonally adjusted 0.9 percent in November.

As a proportion of core retail spending, apparel accounted for 6.6 percent in November compared to 7 percent a year earlier and 7.1 percent in November 2016. 

Hallenstein Glasson chief executive Mark Goddard said Australasian consumers are facing greater pressures on their discretionary spending, while businesses are dealing with legislative changes, challenging exchange rates, and higher costs. 

"As a group, we remain focused on those things that are within our control. Our inventory levels are well controlled," Goddard said.

"We continue to build and develop our teams, to focus and build on our customer experience and service, and to develop and deliver the best product, whilst closely managing our cost base."

The company managed to widen gross margins to 68.4 percent in the 2018 financial year from 58.9 percent in 2017, despite a 12 percent increase in employee costs to $51.6 million. 


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