Noni-B announces 58% drop in half-year profit as retail industry suffers under floods, low consumer confidence

Retailers have taken a beating this morning with fashion chain Noni B announcing a 58% fall in first-half profit due to lower consumer confidence and impacts from natural disasters in Queensland and has warned things are likely to get worse.

The announcement comes as the Reject Shop, which until recently was performing quite well in a frugal market, announced a 16% drop in profit and forecast a massive impact on sales due to the destruction of a key distribution centre in Queensland.

Noni-B announced yesterday that first-half profit dropped by a shocking 58% to $1.52 million, with revenue slightly down from $62.47 million to $61.39 million. Sales overall fell by 1.7%.

The company’s result is just within its guidance but it still represents a substantial fall from grace. During 2009-10 the company recorded a 68% increase in profit to $3.9 million via a thorough process of cost cutting and defiance in refusing to discount.

Joint managing director David Kindl says lower consumer confidence is too much for the company to bear.

“As already announced, low consumer confidence since the federal election has had a major impact on demand and the cool, wet weather during early summer delayed purchases of our summer ranges,” Kindl says.

He said the company has been forced to lower prices in some instances.

“While inventory remains under control and we have avoided the most aggressive discounting, we have had to meet the market, resulting in a slight decrease in our gross profit margin,” he says.

He says while the company is continuing to manage its costs some marketing spend has increased and money has been spent on staff training with a focus on long-term investment in the brand.

“All business and store managers have now completed a nationally-recognised retail qualification to enhance their retail skills,” Kindl said.

Most of the company’s profit result is due to what it says is lower consumer demand as confidence remains volatile.

Kindl says some sales may be affected by the prospect of “higher energy costs and the flood levy”.

The issue of the flood levy affecting retail sales has been highlighted by some companies but some economists say the amount taken from consumers will be so little it may not matter.

“We are continuing to manage tightly those aspects of our business that we can control and are confident that our strong brand and reputation for quality fashion and value will enable Noni B to rebound when demand improves,” Kindl says.

Despite the results Retail Doctor chief executive Brian Walker says Noni-B appears to be in a relatively healthy position.

“Their sales aren’t doing too badly. They also have about $8 million in cash so they have quite a lot in the bank … but what is interesting here is this dramatic drop in earnings,” Walker says.

“They have said their margin was impacted upon, but not dramatically … I would be asking what has caused that dramatic drop in profit.”

Kindl said in a statement that some of the company’s stores had been affected by flooding and cyclone Yasi but no employees were injured and no major damage was sustained.

The Reject Shop wasn’t so lucky, this morning announcing that the destruction of its Ipswich distribution centre has had a substantial effect on the company’s operations.

“While we have reacted quickly by ramping up capacity in our Melbourne distribution centres and engaging the services of third parties to receive and process inventory, supply to stores has not been optimal,” chairman Bill Stevens says

“This has had a consequential adverse impact on sales and costs.”

He says the Ipswich centre is now inoperable and won’t be fully operational until next year.

The company announced a 16% drop in profit for the first half to $15.9 million, with sales up 10% for the year. Comparable store sales growth was up 1.1%.

Stevens says operations are so heavily impacted by floods that the company cannot provide guidance for the full year.

“January and February trading to date has been severely impacted by the recent floods, making an assessment of current trading performance challenging,” he says.

“We are therefore not in a position to provide any updated profit guidance for the full year at the present time.”