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Briscoe warns accounting change and margin squeeze may knock profit

Monday 6th May 2019

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Briscoe Group says it may struggle to deliver another record profit as accounting rule changes reduce earnings already facing a squeeze from higher wages and increased costs. 

Accounting rule changes to how firms can treat leases reduced net profit by $600,000 in the three months ended April 28 and will continue to do so throughout the year. However, Briscoe stressed there was no cash impact on the retailer. 

Even before the accounting changes, the retailer's bottom line was under pressure, with a decline in first-quarter earnings despite a 2.6 percent increase in sales at $150.6 million. 

"While we are relatively pleased with the sales performance for the first quarter, continued pressure on margins and increased wage cost pressures have resulted in a bottom-line profit marginally below that for the same period last year," managing director Rod Duke said in a statement. 

"For the group to continue to achieve positive sales growth is pleasing. However, as widely reported, the retail environment remains highly competitive which, together with the impact of NZ IFRS 16, will put pressure on our ability to grow profit in the short term." 

Briscoe has been a consistent performer among local retailers, notching up eight years of record profits in an environment where growing online channels have undermined traditional 'bricks and mortar' chains. It reported a profit of $63.4 million in the year ended Jan. 27, with a gross margin at 40.09 percent. 

The retailer, which operates the Briscoe, Rebel Sport and Living & Giving brands, said same-store sales were up 2.1 percent in the quarter, with two new Rebel Sports stores opened and one Living & Giving store closed. It also owns a minority stake in Kathmandu Holdings. 

Homeware goods sales were up 2.9 percent at $90.7 million and sporting goods increased by 2.3 percent to $59.9 million. 

Briscoe shares, of which Duke owns about 77 percent, slipped 0.3 percent to $3.29 in early trading today. 

The retailer's lease commitments as at Jan. 27 were $141.4 million over the next five years, up from $125.7 million a year earlier. 

The 2019 annual report estimates the change in the treatment of leases for the 2020 financial year will be to reduce store expenses by about $29.3 million and administration costs by about $1.3 million. Depreciation and amortisation will increase by $18.8 million and interest costs will rise by $15.1 million. 


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