Specialty Fashion issues profit warning

Retail volatility has claimed another victim with Specialty Fashion warning of a looming crunch on earnings.

One of the Specialty group’s Rivers stores.

The volatile state of the retail sector has claimed another casualty with Specialty Fashion Group, whose retail banners include Millers, Katies, City Chic and Rivers, warning that difficult market conditions experienced in July have continued over the first quarter and will crunch its pre-tax earnings by more than half.

In a statement to the ASX, Specialty Fashion (SFH) said that the negative impact of the first quarter on trade means that any improvement is unlikely to be sufficient to recover the shortfall in earnings in that period.

As a result, the company warned, it expected first half underlying EBITDA to be in the range of $14 million to $17 million, against $30.4 million for the same period last year.

This would hack away at its full-year results for fiscal 2018, as Specialty Fashion said in its ASX statement that underlying EBITDA for 2017-18 would be in the range of $14 million to $20 million, against $26.7 million for 2017.

The sustained downturn for Specialty Fashion, whose fashion chains are middle-market retailers that are in most shopping strips and centres, suggests continued weakness across the discretionary sector, especially for fashion and apparel.

It comes as leading department store Myer prepares to update the market on its turnaround strategy at an investor day on November 1, with its biggest shareholder Solomon Lew pushing for the department store owner to release its first quarter trading performance.

Many retailers reported weakness in trading since July, and Specialty Fashion’s warning this morning could be the start of an avalanche of downgrades from retailers.

Specialty Fashion has had a poor run in recent years. In August it posted a full-year loss that nearly quadrupled to $8.39 million after a decision to exit its City Chic stores in the US triggered impairments, while it has revealed that promotional activity in the clothing and apparel sector has remained intense into the new year.

Shares in the retailer slumped 23 per cent on the release of its 2017 results, with that full year loss up significantly from a loss of $2.19m in 2016 as revenue also went backwards, falling to $808.9m from $826.24m for the previous year.

Earlier this year a $135m takeover for the retail group was scuttled after the bidder, Al Alifa, which is controlled by the Qatari royal family, walked away from the deal following the former Qatari ruler’s death.

Specialty confirmed this morning that since the ruler’s death, there had been no further discussions with Al Alifa.