Cavalier Corp announced a "collaboration" with the New Zealand Merino company as it looks to cash in on a growing consumer trend toward natural fibres and away from synthetics.
Yesterday its shares tumbled after it said it will write-down or impair the value of goodwill and various plant and equipment by as much as $9 million and was in discussions "with a respected industry participant regarding a collaboration that will build on Cavalier's capabilities and make a transformative change into a design-led, wool focused company."
Today it identified that company as New Zealand Merino. Chief executive Paul Alston told BusinessDesk that NZ Merino wasn't buying a stake in Cavalier but would supply them with wool and use their expertise to help market and promote the benefits of wool.
"We have traditionally been a manufacturing-led company whereas New Zealand Merino has been a marketing-led company," he said.
"They have been very successful in getting involved and helping other companies like Icebreaker, Allbirds and all those types of things and they can see a future which is more focused on wool and they think that Cavalier - being a traditional wool company which is innovative and at the higher end - fits in well with them," said Alston.
Allbirds has capitalised on a trend for sustainable, natural products that's seen larger global rivals such as Nike and Converse also launch wool versions of their sneakers while merino clothing company Icebreaker - now owned by US retail giant VF Corporation - has also benefited from the growing trend toward natural fibres.
Cavalier said it has more than 50 years of history and in-depth knowledge of the carpet sector and noted consumers around the world are becoming increasingly environmentally aware and wool is well-positioned to capitalise on this movement.
"To optimise this opportunity, Cavalier has appointed NZM to assist the company shift to a design-led business that is fit for the next 50 years. The core objective being to enhance Cavalier's commercial performance and deliver long-term sustainable returns for shareholders," it said in a statement.
Yesterday, Cavalier noted sales of low margin synthetic carpet are declining while growth is being seen in high-end wool carpets. This has benefitted Cavalier given its expertise in high-quality wool carpets, and it said sales of its premium Cavalier Bremworth Collection continued to grow.
Cavalier yesterday reiterated it is on track to achieve its May forecast for normalised profit of $1.9m for the year ended June 30. Normalised net profit was $4m in the prior year.
The figure excludes the non-cash write-down of $11.9m on Cavalier's carrying value of its 27.5 per cent shareholding in Cavalier Wool Holdings following its sale at the end of September 2018 and impairment of goodwill and fixed assets of between $6m and $9m.
It will report its full-year result on August 27.
The shares were unchanged at 25.5 cents and are down 54 per cent so far this year.