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Postie Plus Group's managing director Ron Boskell

by Jenny Ruth

Tuesday 27th March 2007

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 Jenny Ruth
Postie Plus Group reported a first-half net loss of $488,000, down from a $735,000 first-half profit the previous year, although that was slightly ahead of its warning in February that it would post a net loss of about $500,000.

Sales rose 12.5% to $65.2 million in the latest six months. Despite the loss, the company announced a first-half fully imputed dividend of 2 cents a share compared with 3 cents last year. The company owns the 72-store Postie+ clothing stores, the 32 Arbuckles manchester and homewares chain and the 14 Baby City children's apparel and equipment stores.

Sharechat: Why is having a clean stock position so important?

Managing director Ron Boskell: It allows PPGL to promote new, fresh styling on a regular basis. In the past, we essentially had two drops of stock a year and what we didn't sell, we carried over to the following year. It was model that really wasn't going to carry us through. I'm talking mainly apparel here, but we're in the fashion business. Our customers need to see something fresh every season, not just a re-hash of what we had last year. There's also a financial reward in the respect that we're not using all of our money all at once. We get the opportunity to buy more regularly. We would now be looking at six drops a year as opposed to two. The likelihood is that will eventually get to eight a year. I think Glassons are probably doing between 12 and 15 turns a year, to put it into perspective. We're not in that business, but fresh stock more often means more surprises for the customers.

SC: And that means more reason to return to the store?

RB: Yes.

SC: Do you get a financial saving on storage?

RB: That's certainly happening for Arbuckles and Baby City where we now have third-party storage. We're a lot more disciplined today to make sure we don't have stock cramming the fixtures. That's pushing into Postie - we're not quite there with Postie, but we're getting closer.

SC: Is your stock turn position now at about the right level or is further improvement needed?

RB: Each stock drop doesn't necessarily turn into a stock turn. That's just how often we will drop the stock. We used to be on two stock turns (a year). We're now close to three.

SC: Does it vary much between the three chains?

RB: Yes, a little and it varies within the chains. Our boy's wear isn't as good as our women's wear, for instance. We will certainly get to four in the near future. The intention is to lift that to five. It takes a while. It's not a turn on, turn off situation. I would say within five years we will be on five.

SC: You comment that you've been able to put your Autumn/Winter ranges in stores significantly ahead of the usual timing - is that the right time they should be introduced or will you be making changes next year?

RB: The stock that's in there now is what we call trans-seasonal. It's a little more light-weight than one would expect for winter. It's fresh colours. If there was a bit of a cold breeze coming through, it will be OK. I can say now with my hand on my heart that the last eight weeks has seen a lift in that type of merchandise and its profitability. Again, it's really to try to get people to come into our stores and say, oh, that's new, that's fresh, rather than recycled stock. That's the major problem for most retailers at this time of year.

SC: Was most of the discounting at Postie+?

RB: We had discounts across all brands but the significant discounts were in Postie, yes. Whilst it hurt the profitability in that time, if the season had been extended through to last week, we would see a very different scenario. February and March sales were very good as a result of having got rid of a great deal of stock. It's more of a timing issue. Did we over-cook the discounts? In hindsight, yes. We provided more discounts than we should have and that's not part of our strategy.

SC: Would you have seen that lift in February and March if you hadn't discounted so heavily?

RB: We wouldn't have been able to get our (new) stock on the sales floor. That's part of the strategy behind it. We had the stock coming. It was making sure we could get it out there. One has to try to anticipate. I wouldn't say we didn't have a choice. We could have just carried them, but that wasn't a position we really wanted to hit.

SC: Since Postie+ has previously been the company's mainstay, is that a worry for shareholders?

RB: In that eight weeks, (in November and December), the discounts hurt us but Postie is without doubt the strength of the company. In the last eight weeks, that's certainly been the case. They will recover to have a very good year.

SC: Is Arbuckles still a challenge or have you got it right now?

RB: I think we're onto it. We're now getting results through for Arbuckles. We don't report profitability by brand, as you know. It's performed well. It's making ground on where it's been in the last two years. More importantly, the shape of the business has changed. It's moved from being a full discount mentality with cheap offers like $1 tea towels. That was the big rah, rah, rah. We've moved from $1 tea towels and we're now into putting together the changing rooms campaign which is providing our customers with a better opportunity to shop and take advantage of the full service that Arbuckles provides. We're pleased with this direction.


SC: The comments about Arbuckles and Baby City suggest they were profitable in the first half. Is that correct?

RB: We don't provide profitability by brand - that's not to say we won't one day. But both brands have performed well and within our expectations.


SC: How is the "Who's Henri" store in Rotorua performing. Can it be a stand-alone concept?

RB: I'm trying to keep it under the radar at the moment. It is a trial. We're really happy with the overall look and feel of the store. Yes, we believe it will be a stand-alone concept. We haven't put a time on that yet. The label inside the Postie stores has been fantastic. It's keeping some of our existing customers in our stores. They're not just buying casual wear, they're buying more dressier wear now.

SC: How is the Point Zero brand performing? It is all you'd hoped?

RB: Summer was disappointing. Some of our stock - we opened it quite late in summer. As a result, it was hard to get the stock mix right. We've used it more to tweak certain parts of the business to find out where our concentration should be. We've completed research on it and we have a full range ready to hit the stores now for winter. We're putting a lot of emphasis and work on it within the small group of people looking at Point Zero. We want to get a result for winter. We will know by May when I will be able to answer that question somewhat better. We think it's got a place in New Zealand retail. There's a very heavy emphasis on denim which coincidentally is the biggest thing in fashion around the world now.

SC: How are cosmetics sales going? Is that an area you're likely to expand?

RB: Sales and profitability continue to perform really well. However, we feel it's about the right mix in our stores at present. At the end of the day, we're an apparel store and this is an accessory. We're continually tweaking the range we offer so that it's in line with what the customer wants. We've introduced two of our own cosmetic labels, Entice and Prima Donna. Both are going very, very well. They're supported in store by various lines, what we call bin lines.

SC: As in rubbish bins?

RB: No, not that bad. That's in-house terminology. I will call them cheap and cheerful offerings. It could be anything from little ties for kids' hair to hairsprays and things of that nature. This really came from the Rendells purchase. They had a really big cosmetics business and we've retained that in the re-branded (as Postie+) stores. We've found we could put some of the ranges into two-thirds of our Postie+ stores. They do very nicely, particularly in provincial areas.

SC: Why are they in the other third of Postie+ stores?


RB: Space. Some of the stores are just physically too small. The Postie+ store should be around 650 square metres. Some of our stores are still in the 300 square metre bracket. That's part of our growth. This year we've transformed a number of stores like Ashburton and New Plymouth from 300 square metres to 600 and so they get the cosmetics. We've still got a few of those to go.

SC: What difference is the new computer system making? Did its implementation go smoothly?

RB: We implemented the financial (part) in November. That was probably the easiest one and the most straight-forward but very important. It went without a hitch, no problems. With inventory and sales it will be implemented in the last week of April. I've been very careful to ensure that we did it properly and not just because there's a line in the sand to have it done by X date. The 23rd of April is the day we're anticipating changing over. There's significant training for all groups. The real difference will happen about six months after that date when people have got used to using it. They won't have historical knowledge. It's more about making it easier for staff long term. A change is a change and people have to re-learn what they can do blindfold now.

SC: Why is it "prudent" to pay a first-half dividend at all, given the first-half net loss?

RB: Given that our sales and profitability are very much, and always have been, in the second half, we believe we should provide two things for our shareholders, one, some confidence and, two, that they get some return on their investment, small as it might be. We're confident we're going to have a good winter. It was not difficult to do the two cents now. We're looking forward to getting through the winter and seeing what we can provide for the full year dividend. It's too early to work that one out right now.

SC: We are still have very good weather?

RB: It's not hurting our sales just yet, but I wouldn't mind a southerly blast.


SC: Why do most of the company's earnings come in the second half - after all, Christmas is in your first half?

RB: Christmas actually isn't our biggest month. Our biggest months are April, May and June. We do approximate 46% of sales in the first half and 54% in the second half. It's a massive difference in terms of the profit that comes through. When you work through those numbers, the costs to the company are almost flat for each of the six months. Therefore the 54% provides the wonderful profits that come through with Postie in their winters. Don't think I'm giving up on summer or that first-half. We're looking at a number of strategies to build our first half sales stronger than they are. It's the quirky nature of Postie that winter kicks in just astronomically. The nature of retail is you can never be sure what's going to happen. I've been in it over 40 years so I've certainly seen that. We don't see winter as particularly volatile. For the last three or four seasons there have been issues.

SC: Since the latest loss is similar to the 2005 first-half loss, does that mean we can expect a similar full-year result this year?

RB: We're expecting good profits in winter. We will find it difficult to get to last year's full-year result. But saying that, it would certainly be an improvement on the 2005 result.

SC: You've previously commented about the importance of staff morale - has it been hurt by this latest result?

RB: On the face of that, you could say that. We keep very close to our staff with communication. Staff are a very resilient lot in retail. It's the next sale that becomes more important than anything else. It's not that their sales have been affected. In fact, many of the shops reported very good increases. It's more about our gross margin. We're blessed with very, very good staff. A lot of our staff are what I would call mature. That helps overall, their understanding of life. The important thing is for us to show them we're continually improving in terms of the range they're getting. Most of our Postie+ staff are delighted, thrilled with the look of the new season.

SC: Is it the nature of the company that it's profit track will inevitably remain volatile?


RB: It will have to (improve), otherwise I'm going to go mad. No, we don't see it being volatile. Retail always provides seasonal challenges, that much we know. Our two halves are quite different because of the sheer strength of winter and thank goodness for that. We will be working on summer to get a stronger result. I don't think it will ever match our winter results but that doesn't mean it's going to be proportionately worse than winter.

SC: There haven't been any announcement of new director/s - are you having trouble finding them?

RB: We're interviewing. We had two fabulous interviews in Auckland last week, so stand by for the announcement. We're more likely to introduce one new director now with a potential second director a little later in the year. Including myself, there are five directors now. I want a director with very good retail experience and who doesn't have a conflict. By crikey, that's hard. I especially want someone with a great retail background so that I can be challenged and also use that other person to talk about the issues.

Bond Offer: Infratil Ltd, 7.2 year & 10.2 year unsecured unsubordinated bond


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