Pac Brands profit downgrade

Undies to pillows business says first quarter sales are materially down on last year

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published October 24, 2013 10:36 am AEDT

Owner of the Bonds, Berlei, Jockey and KingGee brands amongst others, Pacifc Brands (ASX: PBG) has reported that it expects profit for the 2014 financial year to fall below the previous year's.

Pac Brands, as it is more commonly known, announced at its AGM today that first quarter sales was below expectations, year-to-date sales were down on the previous period and much would depend on trading in the second quarter.

The company has had a rough time over the past five years, with the share price dropping 48%, compared to the S&P / ASX 200 Index's (Index: ^AXJO) (ASX: XJO) rise of more than 35%. In 2009 the company faced a backlash from unions, after 1,850 staff were sacked, while at the same time the total remuneration for Pac Brands' directors more than doubled. The company has also seen the previous CEO depart over that time, unable to turnaround the company's performance. CEO Sue Morphet stepped down in 2012 after the company reported a $450 million loss, which came on the back of a $132 million loss the previous year.

In the 2013 financial year it seemed the company had finally turned things around, with a net profit of $74 million, but that may have been a one-off.

Current CEO John Pollaers said at the AGM that preliminary indications are that first half earnings and net profit would be materially down compared to last year's result due to weak trading conditions, a continued downturn in the Workwear market, and the non-renewal of some licences.

Pac Brands sells much of its product through retailers such as Kmart and Target – owned by Wesfarmers (ASX: WES) and Big W – owned by Woolworths (ASX: WOW), as well as the major department stores including Myer Holdings (ASX: MYR). But its brands have little competitive advantage, and consumers have been focused on price as much as anything else.

Foolish takeaway

Pac Brands operates in a tough business, not helped by low consumer confidence. It's unlikely to get much better for the company anytime soon, no matter how hard it runs.

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Motley Fool writer/analyst Mike King owns shares in Woolworths.

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