Profits: Specialty Drops Dividend/Bendigo Holds Payout

Women's retailer, Specialty Fashion Group has joined the no dividend club and a spot of rationalisation after confirming earlier guidance of a sharp drop in sales and earnings for the December half year.

The group confirmed yesterday guidance given on January 18 of the lower sales and earnings and plans to close up to 120 of its stores over the next three years as it looks to boost online sales to combat what it says is the worst retail environment it has experienced.

Directors said the decision to omit the interim dividend was taken to preserve capital because of the tough retailing climate and no sign of an improvement in sight.

The group joined the likes of Goodman Fielder and Qantas in dropping dividend payouts to shareholders to maintain cash reserves.

Qantas hasn't paid a dividend for three years, so Specialty fashion has a way to go before reaching that level.

Specialty paid a 4c a share interim for the first half of 2010-11.

The shares fell more than 4% to 48c, in a market up more than 1%.

The retailer, which operates chains such as La Senza, Millers and Katies, reported a 64% fall in first half profit and said it expects economic conditions to remain tough in the second half, with no immediate signs of customers returning to stores.

Net profit after tax was $6.15 million in the December half, down 64.1% from $17.15 million in the prior corresponding period.

Revenue was $307.28 million, down 0.5% on the previous half year period (as detailed on January 18).

Topline sales fell half a per cent to just over $307 million but same store or comparable store growth, the best measure of retailing sales performance, dropped a nasty 4.5% in the six months to December.

Specialty said yesterday it had closed seven stores since January this year and it plans to close another 15 stores in the second half of fiscal 2012.

At December 31 it had 909 stores across Australia.

"We remain committed to our strategy of recalibrating the group of businesses through discipline, innovation and expansion into sales channels in order to maintain the financial health of the company in the short term and ensure we are well set for long-term growth,'' chief executive Gary Perlstein said in yesterday's statement.

There would be a ''rationalisation of the store portfolio'' and a reduction in capital expenditure as the company's focus shifted to multiple channels, the company said.

As part of this switch of focus, Specialty has targeted a 15% increase in online sales over the next three years, and would launch a women's wear online business featuring local and global brands by the middle of this year.

It remained focused on protecting gross profit margins through an improved mix, reduced inventory levels and supply chain innovations.

The company has an $85 million net debt facility available and net cash of $6.2 million.

Earnings before interest, tax, depreciation and amortisation (EBITDA) were $21.9 million, in line with the company's guidance offered on January 18.

The interim result from Bendigo and Adelaide Bank yesterday was of those announcements where it does pay to look to the underlying performance for a better idea of how the company performed in the December half year.

On the topline result, the outcome was weak, with first-half profit plunging by more than 60%, but on the cash basis used by banks, it was a touch better.

The bank said net profit was $57.9 million, down 67% (after one off items), but cash earnings were a more comforting $162.1 million, up 0.3% from the previous corresponding half year.

Chief executive Mike Hirst said in yesterday's statement that the cost of all the bank's funding had increased markedly in the first half of the financial year, including retail term deposits and debt markets.

The economic outlook for the remaining six months remained difficult, with funding costs, a changing asset mix and demand for credit "all currently problematic", he said.

Bendigo declared a fully-franked interim dividend of 30 cents per share, in line with the same period in the previous year, which tells us more about the confidence the board has in the outlook.

Mr Hirst said the increase in funding costs meant that net interest margin (NIM) fell two basis points (0.02%) compared to the prior corresponding period, and fell six basis points (0.06%) when compared to the half year ending 30 June 2011.

"Recent asset repricing will go some way to addressing this but the higher funding costs have yet to be fully recouped," he said.

"The contraction in margin, coupled with slowing credit growth and market sentiment moving investors away from higher margin wealth and equities products, has resulted in flat earnings," Mr Hirst said.

"Despite this impact, we have materially improved our balance sheet strength, and in particular our capital ratios over the past six months.

"We completed an institutional share placement in December for $150m in preparation for our purchase of the Bank of Cyprus Australia.

"In addition we expect to raise between $50m and $70m through our Share Purchase Plan, which will be open to eligible shareholders from tomorrow (February 21).

"Together the placement and SPP is expected to take our Tier 1 capital ratio to 8.49 per cent, and Core Tier 1 to 7.59 per cent."

Bendigo shares rose 12c or 1.5% to $8.14.