By BRIAN GAYNOR
Rod Duke, Briscoe Group's chief executive and largest shareholder, was in a buoyant mood on Thursday when he announced his earnings for the year to January 27.
He had plenty to smile about because net profit for the 12 months was $17.5 million compared with the prospectus forecast of
$15.1 million. Directors declared a final dividend of 3.25c a share compared with the predicted 2.6c.
The profit figure confirms that Duke is the rising star of the listed retail sector, if not the whole New Zealand sharemarket.
Gross margin improved from 30.9 to 31.6 per cent, net operating cash flow was $26.3 million compared with $13.9 million the previous year and the company has $54.1 million of cash and no borrowings.
Duke, who owns 75 per cent of Briscoe, said the buoyant conditions had continued into the current year.
He expected the prospectus forecast of $17.7 million to be easily surpassed (the average number of shares on issue has been used to determine this year's earnings per share and the company will have to achieve a net profit of $21.2 million to maintain its 10.1c a share earnings).
Duke said retailing was strong throughout the country and he did not expect the rise in interest rates to adversely affect Briscoe's performance.
The rise in the New Zealand dollar should benefit margins and the refurbishment and opening of new stores would have a positive impact on earnings.
Briscoe would continue to refurbish and open new Briscoes stores and Rebel Sport stores, and expand into new speciality retail formats.
The company was looking at two new formats.
Duke would not elaborate except to say that he remained totally committed to speciality retailing in New Zealand and would not get involved in either food or hospitality-related activities.
Retailing is an extremely competitive industry where management expertise plays an important role in a company's performance.
Duke is one of the country's best retailers.
In just four months since listing, Briscoe has surpassed the combined market value of Hallenstein Glasson and Michael Hill International.
The Australian-born head of Briscoe is on a roll. Although his share price has a relatively high price/earnings ratio it still has plenty of potential.
The Warehouse also announced a good result for the January half-year.
Net earnings were $59.1 million compared with $52 million last year.
Directors declared an interim dividend of 9.5c compared with 8.5c last year.
Strong earnings growth was achieved in New Zealand but the Australian interests continue to disappoint.
Operating earnings fell from $9.5 million in the first half to $7.9 million.
The second half of the year started on a strong note with New Zealand sales up 14.4 per cent in February compared with the same month last year.
Australian sales were 27 per cent higher in February and same-store sales up 8.1 per cent.
Directors were optimistic about economic conditions in New Zealand and Australia although these comments were made before this week's interest rate rise.
The Warehouse remains one of our better managed companies and most analysts predict earnings per share in excess of 42c for the July 2004 year.
If these forecasts are achieved, particularly with a strong contribution from Australia, then the group's relatively high price/earnings ratio and low dividend yield are justified.
Michael Hill International reported a net profit of $8.7 million for the December six months compared with $7.7 million for the same period in the previous year.
The latest result included a pre-tax profit of $358,000 on the sale of its head office.
The jeweller, which has 43 stores in New Zealand and 78 in Australia, said operating earnings in New Zealand increased 22.5 per cent but fell 10.2 per cent across the Tasman.
Margins fell in Australia after September 11 but since December, they have returned to normal.
The board is investigating an expansion into Canada and a study will be completed in May.
An expansion into North America would be a major step but Michael Hill has proved that it can achieve growth outside New Zealand. This strong overseas performance justifies the company's relatively high price/earnings ratio and low dividend yield.
Hallenstein Glasson is due to report next week for the six months ended February 1.
Chairman Warren Bell told the December annual meeting that sales for the first four months of the year were 5 per cent ahead of the same period last year, although this included new stores.
He warned that trading conditions in Australia were difficult.
Hallenstein has 16 stores in Australia compared with 94 in New Zealand, but has been unwilling to give any specific information on its trading performance across the Tasman.
This poor level of disclosure has affected the company's share price, as have concerns that the company's 94 per cent dividend payout cannot be sustained if it experiences problems across the Tasman.
The clothing retailer must prove that it can operate profitably in Australia and have a higher level of disclosure before there is any significant improvement in its share price.
Pacific Retail is interesting from an investment perspective.
The company does not pay a dividend but it has a prospective price/earnings ratio of only seven for the March year and five for the next year.
These are based on management forecasts in Andersen's independent appraisal report released last October.
Pacific Retail's profit forecast for the next financial year is higher than Briscoe's yet its sharemarket value is only a fraction of Duke's company.
The reason for this is the "Eric Watson factor" and the takeover offer for Bendon.
Watson, who owns 71.4 per cent of Pacific Retail, is a wealthy businessman who has never had a genuinely successful listed company.
He is continually buying and selling assets and, unlike Duke and Stephen Tindall, does not give his listed companies a chance to settle down and develop a strong business base.
The offer for Bendon fits into this pattern. The initial announcement said that the buying of shares was "firmly in line with Pacific Retail's expansion strategy and the aspirations of its major shareholder".
Investors have taken a negative view of the offer, especially after Monday's announcement of a $20 million rights issue.
Pacific Retail's shares are cheap but they will not pick up until directors and the management convince investors of the wisdom of the Bendon offer.
The remaining three listed retailers are small.
Kirkcaldie & Stains has bought the Harbour City Centre in Wellington for $29 million. This purchase is contrary to industry trends and the Wellington company is expected to report lower earnings for the August year and the next year because of interest costs associated with the deal, and higher tax charges.
Beauty Direct has yet to prove that it can generate a profit from online retailing and Arthur Barnett is a sleepy South Island company that is less profitable than it was 20 years ago.
* Disclosure of interest: Brian Gaynor is a Briscoe, Pacific Retail and The Warehouse shareholder.
* bgaynor@xtra.co.nz
By BRIAN GAYNOR
Rod Duke, Briscoe Group's chief executive and largest shareholder, was in a buoyant mood on Thursday when he announced his earnings for the year to January 27.
He had plenty to smile about because net profit for the 12 months was $17.5 million compared with the prospectus forecast of
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