Pacific Brands Limited gives shoe division the boot: Will shareholders benefit?

Has Pacific Brands Limited (ASX: PBG) finally got its strategy in place to drive profit growth?

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Published November 17, 2014 1:27 pm AEDT

Pacific Brands Limited (ASX: PBG), often referred to as the "socks and jocks" maker, has confirmed it is looking to sell off its Brand Collective business, which markets the Hush Puppies, Clarks and Volley brands.

In a statement to the ASX today, the clothing manufacturer says it is in discussions to sell the Brand Collective operation, but nothing has been finalised as yet.

Just three months ago, the make of Sheridan linen and Bonds undies sold off its workwear division, including brands Hard Yakka, Stubbies and King Gee to Wesfarmers Ltd (ASX: WES). The Workwear division made up 29% of Pacific Brands full year sales in 2014, from 74 stores. That sale was worth $180 million, and the company will report a profit of $35 million in the 2015 financial year. Net proceeds from that sale would go to pay down debt.

Last financial year, the Brand Collective business represented 16% of total group sales coming in at $204.5 million, but earnings before interest and tax (EBIT) came in at a negative $0.9 million. Many of Pacific Brands' products are sold through department stores and discount department stores such as Target, Big-W and Kmart, but also through company-owned and franchise stores.

Analysts have estimated that Brand Collective could be worth around $20 million – and again – net proceeds are likely to be applied to reducing debt levels. At the end of June 2014, the company had $249 million of net debt.

The sales of the two businesses will likely cut around 45% of Pacific Brands total sales, leaving the company with its main two businesses – Underwear and Sheridan Tontine. The company has previously stated that it is focusing on these two businesses, so there's no real surprise that the footwear/ Brand Collective division is being sold off.

Most of Pacific Brands' revenue growth last financial year came from these two divisions, so concentrating on driving more growth and cutting costs out of these businesses is likely to pay dividends for shareholders over the long term.

Pacific Brands may well be about to turn the corner.

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