It’s a gloomy time to be a retailer in New Zealand, with poor financial result after poor financial result this earnings season. The Warehouse reported falls in first half profits for its Red and Blue sheds and Torpedo7, with worse to come for the full year. JB Hi-Fi saw H1 revenue and gross margin down and profit practically non-existent. Michael Hill announced a 66 percent drop in first-half profit, as it counts the cost of exiting the US market. Dick Smith didn’t need to announce its results – it no longer exists.
Away from the listed sector, middle-aged shoe aficionados had a quiet weep this weekend attending the closing down sale for local shoe-retailing stalwart Minnie Cooper. The comfortable, last-forever, NZ-made brand has gone the way of so many other Kiwi icons – after 30 years in the market. Owner Sandy Cooper blamed increasing costs, a high exchange rate and competition from overseas websites.
And then there’s the Briscoe Group. And bugger me if CEO Rod Duke hasn’t just announced his eighth consecutive year of record sales, profits, shareholder returns and dividends. Margins were squeezed, but net profit rose to a record $61.3 million, or 27.3 cents per share, in the year ended January 28, up from $59.4 million, or 26.5 cents, a year earlier. Sales rose 3.5 percent to $603.1million.
In addition to the homeware chain, Auckland-based Briscoes also owns Rebel Sports and almost 20 percent share of outdoor clothing store Kathmandu. (It tried but failed to buy 100 percent in 2015.) Rod Duke says it hasn’t been a easy year. Quite apart from the normal pressures from local competitors and online international players, 2017 brought everything from fires in Christchurch in February, snow and heavy rain in July and “the British and Irish Lions tour, which sucked up a big chunk of discretionary spending”, Duke says.
“It was a very satisfactory result in what had been a highly challenging year.”
He reckons with total retail spending in New Zealand rising only marginally over the last few years, Briscoes’ success has come at the expense of its competitors – companies like The Warehouse.
“We understand our customers well and have been offering to them famous brand names with good quality and at very good prices. While the average price of [The Warehouse’s] pillow, iron or toaster may be cheaper, generally it’s a no name product made in Mongolia. We believe people are happy paying a bit more for a famous brand name.”
Carolyn Holmes, head of equity research at financial service provider ShareClarity, has been covering Briscoes for several years. She says Rod Duke is a good business manager and has maintained his focus on costs, inventory management and having a good feel for customers. She says the ‘mark up to mark down’ model, where stores lure customers into stores with regular mega sales, has worked well – and sets the Briscoes Group apart from retailers like The Warehouse using an ‘every day low prices’-type model.
“He sticks to his knitting and has kept focused on what he does well. He has kept a consistency in his offer, down to using the same lady [Tammy Wells] in Briscoes TV ads for nigh on a quarter of a century. His relationship with suppliers is good and he knows what sells. And he has done a better job than other companies of managing end-of-year inventory so he doesn’t end up with lots of stock at the end of the season.”
Duke has also kept a conservative war chest on his balance sheet, which allows him to take advantage of an opportunity if/when it arises. He says Briscoe’s board is “an interested observer of Kathmandu’s performance and of potential opportunities in the industry more broadly”.
On the negative side, Briscoes’ homeware stores in particular are reliant on strong economic cycles, particularly the buoyant housing market of recent years, Holmes says. Any downturn in housing would likely impact its bottom line. And Briscoes Group, like all other bricks-and-mortar stores, is under threat from online retailers.
In typical upbeat fashion, Duke says he’s got it covered.
“My online business is just spectacular. We’ve had five years of 40 percent compound growth; this year it’s 39 percent. I’m not unhappy with my online sales.”
Both Briscoes and Rebel Sport will roll out click and collect to all stores over the next 12 months, following a successful trial in the Botany homeware store, he says.
“The Group is also well advanced on improvements to its online offering, with upgrades to its web platform underway, and new fulfillment hubs in Whanganui and Hamilton up and running.”
Briscoes’ board will pay a final dividend of 11.5 cents per share on March 29. That takes the annual payment to 19 cents, up from 18 cents per share a year earlier.
The shares, of which Duke owns about 78 per cent, rose 0.3 percent to $3.68 this morning on the back of the financial result announcement, having increased 6.4 percent so far this year.
Briscoe recognised an $18.8m gain in the value of equity securities, although that wasn’t included in the net profit, and received a $5.2m dividend from its 19.8 percent stake in Kathmandu Holdings, which reports next week. The outdoor equipment chain’s shares rose 3.1 percent.
