Ambitious Briscoe sacrifices earnings

An ambitious roll-out of new stores and poor pre-Christmas sales have cut profit levels at Briscoe Group, it emerged yesterday.

But after a "satisfactory" end to the year, the company came in at the top end of market forecasts.

Briscoe reported an after-tax profit of $18.7 million for the year to January 2005, slicing more than a fifth off the previous year's $23.6 million result. That occurred despite a $3 million increase in sales to $320.6 million, because the sales gains were outstripped by higher operating costs.

Late last year, Briscoe signalled that a disappointing end to November and slow start to December would cut profit to about $17.5 million, but in January said the figure would be boosted by better-than-expected Christmas sales.

One analyst said it was positive Briscoe had maintained its final dividend at 4.25c despite the weaker result - taking the total payout for year to 7c a share. "When these stocks are sold down, they start to get supported by their yield, so it's good to see they held the dividend." The analyst said the company was headed in the right direction, but would need to maintain its stronger performance for longer before the market was convinced.

Briscoe's managing director, Rod Duke, said costs had been driven up by the opening of six stores. "There were gaps in Rebel and Briscoes Homeware's distribution network, so we opened them ... with prime real estate you have got to put your hand up or put your hand in your pocket. If you put your hand in your pocket, it will stay there for a long time."

Same store growth fell 4.8 per cent for Briscoe's and 10.6 per cent for Rebel Sport, but Duke was encouraged by early signs of a recovery in growth in February and March. He said the company expected to perform "significantly better" this financial year than it had in the year to January.

"Same store growth is the key to it all. At the end of the day, these stores generate costs and we have got to get the sales out of each of these stores to make sure they carry their burden of cost," said Duke.

Competition remained intense and change in strategy employed early last year - dropping the number of sales and depth of discounting - continued to be fine-tuned. But Duke said it had begun to pay off in the fourth quarter and would not be dropped. "It has been working like a dream since Christmas."

Also on the positive side, cash inflows from operating activities were up $6.29 million to $31.7 million, and stock levels and gross profit margins had improved.

After the poor pre-Christmas period, the warmer weather had helped Briscoe dispose of its summer stock. Duke is hoping the good weather ends soon. "It would certainly be wonderful if around the end of the month it gets wetter."