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Hallenstein shares fall as margin squeeze pushes annual earnings near bottom of guidance

Thursday 26th September 2013

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Shares in Hallenstein Glasson fell after the fourth-biggest listed retailer posted an 11 percent slide in annual earnings to near the bottom of its forecast range, as margins at the women's wear Glasson unit came under pressure.

Net profit fell to $18.7 million, or 31.3 cents per share, in the 12 months ended Aug. 1 from $21 million, or 35.24 cents, a year earlier, the Auckland-based retailer said in a statement. That was near the bottom of its guidance in June when it said profit would be between $18.5 million and $19.5 million. Sales edged up 2.1 percent to $220.1 million.

The shares fell 1.8 percent to $4.95, adding to its 3.8 percent decline this year. The stock is rated an average 'hold' based on five analyst recommendations compiled by Reuters, with a median target price of $4.80.

"It's a little bit of a kneejerk reaction - I'm not really expecting it to dip too much further," said Grant Williamson, director at Hamilton Hindin Greene. "They pay a very good dividend, and are lacking a bit of growth in what's a pretty depressed retail environment."

The board declared a final dividend of 17.5 cents per share, payable on Dec. 6 to shareholders on the register at the end of Nov. 29. That takes the total payout to 33.5 cents per share, unchanged from a year earlier and amounts to more than annual per-share earnings. The stock has a prospective dividend yield of 6.8 percent, according to Reuters data.

Hallenstein has been among a group of clothing retailers who gave profit warnings as tough competition in Australia put a squeeze on margins and as the warm winter kept consumer spending on apparel under wraps.

Children's clothing retailer Pumpkin Patch, another who gave a profit warning, and Postie Plus, which has been under strain from a poorly executed outsourcing decision, are due to report earnings tomorrow.

Hallenstein's margin on operating profit narrowed to 11 percent from 13 percent a year earlier.

The company said the first seven weeks of the 2014 financial year have been "difficult" with sales down 9 percent from a year earlier, most of which is in the women's wear segments.

"Both the Hallensteins and Storm brands performed to expectations, but Glassons in both New Zealand and Australia felt the full brunt of a record mild winter and aggressive discounting in the women's wear marketplace during the past six months," the company said in a statement.

"Future dividend will be dependent on group trading performance and capital expenditure requirements," Hallenstein said. The company has previously said it has a dividend policy of paying between 90 percent and 95 percent of after-tax profit.

Sales at the retailer's Hallenstein range rose 5.3 percent to $81.6 million, and boosted profit 18 percent to $9.1 million, while its Storm unit lifted revenue 24 percent to $9.3 million and profit 17 percent to $1.6 million.

Glassons New Zealand, the biggest segment by sales, reported a 3.1 percent fall in revenue to $88.2 million and a 22 percent slide in profit to $8.4 million, and Glassons Australia sales increased 3.7 percent to $40.9 million, while turning a loss of $1.2 million.

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