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Better buying and a stronger dollar has helped boost profits at Hallenstein Glasson, but the impending GST rise is clouding the future, says the listed retailer.
Net profit for the year ended August 1 was up 52.9 per cent to $19.6 million, with sales revenue up 4.5 per cent to
$207.1 million.
Chairman Warren Bell said earnings before tax in the second half of the year had increased 62.5 per cent driven mainly by growth in gross margin. The growth in gross margin was attributed to an improved buying regime that resulted in less need to clear unwanted stock, a better product offering and a stronger New Zealand dollar.
"Whilst the strength on the NZ dollar has undoubtedly been an important factor in achieving improved margin, we cannot overlook the impact of better buying," Bell said.
However, the retail environment remained challenging and the company did not see any significant improvement in the near term.
It would be extremely difficult to maintain the momentum of the past year and would be more challenging to improve the sales and margins of the existing business base, he said.
Australia was becoming increasingly competitive, with rising interest rates and dampening consumer spending.
In New Zealand the outlook was clouded by a GST increase, with an unknown contra effect from decreased personal tax, Bell said.
Sales for the first seven weeks of the new financial year were up 5 per cent on the previous year.
The December trading period comprised a significant proportion of the summer season and any projection at this stage would be premature, Bell said.
"We won't be trying to spend too much time worrying about everybody else but really just trying to do the basics within our business to the best of our ability and we've got the financial resources to make the re-investment that we've started to make."
The company would give an update at its annual meeting in early December.
Shares closed up 12c yesterday at $4.24.
Forsyth Barr analyst Guy Hallwright said the company's results had been affected by the recession for about 18 months but in both halves of 2010 profitability was back to pretty normal levels.
"It's a very solid result and their caution is just around a softening environment in Australia and acknowledging that they have had a few tail-winds behind them this year but I'm sure they're going to produce a solid result again next year."
Retail sector sales growth had flattened off in New Zealand because of the recession.
"And it hasn't really recovered from that," Hallwright said. "What's happened is the retailers have all adjusted their cost bases and their inventory management and everything else to try to match the environment they find themselves in. "That takes time to do and that's why they all suffered a couple of half years at least of very depressed profits while they scrambled to get their costs in line.
"But once they got them in line they've actually managed to improve their profits to pretty normal levels across most of the retailers now, even though the environment remains subdued."
Hallwright doubted the increase in GST would have a lot of impact on clothing.
"For things like cars or large households items you're probably going to get a bring forward effect but that's all it is really," he said.
"If people spend more in September ahead of the GST rise then they'll spend a bit less in October [and] over a couple of months it'll just wash out."
