Spending power has improved for the Kiwi consumer over the past year with interest rates at record low levels (albeit offset by the upsizing in mortgages in Auckland) and petrol idling along under $2 a litre. The dominant petrol retailer, Z Energy, cut its pump price 10 times in as many months.
Such factors were expected to generate a positive reporting season from the listed retailers, apart from apparel retailers.
Apparel industry growth has been solid and accelerated over the summer six months. Despite this, analysts expected to see margin pressure. Hallenstein Glasson and Pumpkin Patch were impacted by the lower New Zealand dollar. Forsyth Barr equity analyst Chelsea Leadbetter noted this is given the limited pricing power of an apparel retail model.
There was a 53rd week in the 2016 year for some. This is required once every five to six years to realign the financial and calendar year-ends.
The extent to which Briscoe Group outperformed is eye-catching, with a net profit of $47.14 million for the year ending 31 January 2016, a 19.94 percent increase on the $39.30 million result in FY15.
Managing director Rod Duke is understandably proud of a compound growth in net profit over the last five years of 16.9 percent per annum, given the challenging competitive environments encountered.
Sales revenue of $552.89 million is a gain of 9.04 percent. On a same store basis and adjusting for the additional week’s trading, sales were 5.44 percent ahead of 2015.
The number of Briscoes Homeware stores increased by only one to 47, during the year with the opening of a new store at Queenstown. Briscoes Homeware stores’ total floor area now stretches across 100,085 m³. Rebel Sports store numbers increased to 35, with the opening of new Rebel Sport stores at Hornby and Queenstown, and total floor area to 56,394 m³.
Briscoe’s gross profit margin increased from 38.90 percent to an outstanding 40.49 percent, through constant focus on inventory and promotion management, benefits from the stock-receipting (via scanning) project implemented during 2014, continued refinement of local and international product ranges, prudent foreign exchange cover and increased sophistication around the construction, delivery and analysis of promotions.
Duke said in our interview for NZRetail that since the group is comprised purely of destination stores with minimal pedestrian traffic, they are actively promoted. “When there is excess stock we promote heavily, we are event driven around public holidays; when all is going well we don’t have to discount as hard and when we have stock to move we discount a bit harder. That’s one thing that drives margin for us.”
Buying stock primarily in US dollars, Briscoe Group takes a diligent interest in forex hedging. “Early in the 2015 calendar year we bought extensive forward cover on the US/NZ cross-rate. About 50 percent of Briscoe sales are made from our own offshore purchases, so that can be a very significant number.”
The material depreciation in the NZD/USD cross-rate is a near-term headwind going forward as favourable hedging rolls off for the majority of the listed retailers, says Leadbetter. Duke says that as hedging gets weaker, you should bring more on. In early February he was buying additional cover at US$0.68. It sure helps to have lots of cash in the bank.
The stock receipting system has brought significant benefits over the last twelve months. Duke has stock delivery moving at speed between back store and shop floor and with sharpened accuracy within the stock process. It’s an area where he reckons some peer businesses are dawdling. Duke has the supply chain passing like an All Black backline. “Stock-turn, at the end of the day, is cash.”
Briscoe is also stepping ahead of the field in “refinement of the product range”. Duke told NZRetail Briscoe now sources from regular supplier factories in “the Far East” and from successful European manufacturers. To be sure, it is helping to consolidate the customer perception of Briscoe.
I was interested to see online sales are now attaining 4.5 percent of group sales. By quick calculation that’s $24 to 25 million, or circa three times average store revenue, with additional fulfilment capacity added to meet demand. But here’s the thing: Briscoe doesn’t have a separate warehouse doing fulfillment. Their nearest fulfillment point is the closest store.
This story originally appeared in NZRetail magazine issue 743 April / May 2016