Briscoe posts profit but can’t woo Kathmandu shareholders

  • News
  • September 14, 2015
  • Elly Strang
Briscoe posts profit but can’t woo Kathmandu shareholders
Rod Duke and Tammy Wells, aka the "Briscoe's lady"

Tax-paid profit hit $20.5 million in the six months ended July 26, up from $18.5 million in 2014.

This was in line with the company’s July forecast of at least $20 million, Briscoe Group said in a statement.

The retailer announced the news at the same time it released its half-year results.

Briscoe managing director Rod Duke says the company was “obviously disappointed” with Kathmandu shareholders’ low acceptance of its offer.

"This suggests to us that Kathmandu shareholders are expecting the company to reverse the negative trends in its operating and financial performance of recent years, and to deliver greater value increases than they would obtain from a merger of the two companies,” Duke says.

“As the largest shareholder in Kathmandu, we would like its performance to improve and for the value of our 20 percent Kathmandu shareholding to rise, but we see little chance of a turnaround sufficient for the directors’ published forecast of a NZ$30 million profit after tax for their 2015-16 financial year (ie a 50 percent increase) to be achieved.”

It said this outlook was unrealistic due to:

  • Kathmandu’s four year decline in same-store sales
  • Challenging retail trading conditions in Australia and New Zealand
  • Increased competition from Kathmandu competitors
  • Reduced Australian and New Zealand dollar exchange rates against the US dollar
  • Kathmandu’s intention to reduce employees in their two head offices by 10 percent
  • Kathmandu’s assumption that they will be able to reduce costs by NZ$7 million for the current year
  • Nothing yet announced that would help overcome Kathmandu’s deficiencies in their pricing, promotion models and retailing operations and structures.

The takeover offer is five Briscoe shares for every nine Kathmandu shares, as well as 20 cents per share.

Gross margin for the Briscoe Group increased to 41 percent from 39.6 percent.

Briscoe Group attributed this to its focus on inventory management.

Last year it started stock receipting items by scanning them in its Briscoes stores and Rebel Sports stores, which it said streamlined its inventory management.

It said refining the breadth and quality of local and international product ranges was also helping to deliver margin gains.

Briscoes homeware’s earnings before interest and tax increased 11 percent to $17.6 million. Sales increased three percent to $158 million.

Meanwhile, Rebel Sport’s earnings grew 29 percent to $10.7 million, while sales increased 10 percent to $86 million.

The minor gain in Kathmandu shares means Briscoe Group is just short of owning a quarter of the company. It has 22.2 percent of the shares.

Duke has played hard ball with Kathmandu’s shareholders and told them they should take it or leave it, as he won’t be increasing the offer.

But Kathmandu’s board has stood firm in its rejection, saying the offer undervalues the company’s worth.

From the looks of the currently unsuccessful takeover bid, it appears Kathmandu’s shareholders are listening to the board’s concerns.

The offer closes in three days on September 17.

Briscoe Group said it could be open to a merger in the future if the bid fails.

“We still believe that a merger of Briscoe Group and Kathmandu could be structured to be a significant win-win for both companies’ shareholders, and are open to the idea of progressing a merger at some stage in the future regardless of whether our current takeover offer succeeds,” it said in its statement.

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