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By Swati Pandey
SYDNEY (Reuters) - Australian retailers Pacific Brands Ltd (AX:PBG) and Specialty Fashion Group Ltd (AX:SFH) on Tuesday said they would focus on growing core brands as they look to capitalise on rising sales with improving consumer sentiment.
The clothing retailers posted higher sales growth for the year to June, even though profit margins came under pressure due to discounting to lure customers who may be skimping on clothes to spend more on food and durable goods.
Concerns about Australia's economic growth following the end of a mining investment boom, proposed government budget cuts and higher household debt have forced consumers to tighten their purse strings on discretionary items while staples have done relatively better, analysts said.
"There are signs of some improvements and we are expecting further improvements over the rest of the year, but it's certainly not boom time for retailers anytime soon," said Michael McCarthy, chief market strategist at CMC Markets.
"Consumers are being quite conservative, they are paying off debt or saving money and that obviously means that they are not spending in stores, and until there's a bit more confidence it's hard to be optimistic on the retail space."
A measure of Australian consumer sentiment rose strongly in August after a federal budget-related slump in April and May, as households viewed the near-term economic outlook more positively and fretted less about their finances.
Even so, Pacific Brands, Australia's largest listed clothing manufacturer, on Tuesday said it had swung to a net loss of A$224.5 million (125.35 million pounds) in the year to June as it was hit by one-off items that took the gloss of rising sales.
It said it would sell its Workwear brand to Wesfarmers Ltd (AX:WES), which owns Coles and Target retail brands, for A$180 million to focus on its core Bonds underwear and Everlast sportswear labels.
For rival Specialty Fashion, which sells Rivers and Millers clothing and footwear brands, annual net profit fell 3.8 percent to A$12.5 million although revenues jumped by 20 percent.
Specialty Fashion will focus on improving margins through online sales and changes in its supply chain rather than discounting prices, CEO Gary Perlstein said.
It expects to expand its City Chic brand in the United States and South Africa in FY15, he said.
FALLING MARGINS
While Specialty Fashion fell short of giving guidance for FY15, Pacific Brands expects gross margins to fall due to competitive and foreign exchange pressures even as sales rise.
Pacific Brands said sales would rise in FY15 but earnings before interest and tax were expected to fall "materially".
Specialty Fashion shares slumped nearly 13 percent in early deals to touch 4-1/2 month lows, while Pacific Brands was up 0.88 percent at A$0.58.
Earlier this month, Perth-based Wesfarmers Ltd (AX:WES), Asia's largest retailer by market value, posted strong sales growth in its Coles grocery and Bunnings home improvement units in its forecast-topping annual profit.
But its apparel and household goods supermarket chain Target posted a near 37 percent fall in earnings before interest and tax.
"The budget and continued job losses impacted negatively on consumer confidence and therefore that has put pressure on the discretionary retailers to continue to cut margins to gain sales," Asenna Wealth Solutions senior trader Assad Tannous said.
(Editing by Stephen Coates)