Clothing and apparel retailer PAS Group Ltd (ASX: PGR) has seen it share price jump 33% to 58 cents in lunchtime trading.
PAS Group owns and operates 263 retail stores under several brands including Review, Metalicus, Black Pepper, Marco Polo and Yarra Trail. The company's DesignWorks division also owns licenses to sell brands such as Everlast, Slazenger, Dunlop, Fred Bare, Mooks, Coca-Cola, No Fear, Mattel, Star Wars and Disney. Many of its products are sold through department store retailer Myer Holdings Ltd (ASX: MYR), Target – owned by Wesfarmers Ltd (ASX: WES) and Big W – owned by Woolworths Limited (ASX: WOW).
The reason for the jump was a positive trading update released today. PAS says it now expects the second-half of the 2014 financial year to see earnings before interest, tax, depreciation and amortisation (ASX: EBITDA) in the range of $11.3 to $12.8 million. That's well above the $8.7 million delivered in the first half.
PAS recorded an underlying net profit of $3.3 million in the first half, but a statutory loss of $34.8 million, after taking a $38.1 million write-off on Metalicus goodwill and the brand name. Same store sales slumped by 4.4% in that half – hardly an auspicious beginning for the retailer, which listed in June 2014.
Now PAS says it has seen success with new Designworks brands and licences launched, growth in Black Pepper from new stores and positive like for like sales, growth in Review – again from new stores and online sales growth and an improved second half performance in Metalicus.
The question is whether PAS can continue to generate strong growth. Retail sales generate just over half of all group sales – with the remainder coming from wholesale sales. With customers like Myer, Target and Big W struggling to generate strong growth, there's the lingering concern that they may push back on suppliers like PAS to cut margins.
Better value elsewhere
Despite the optimism surrounding today's update, I'm steering clear of PAS Group. Even after the share price jump, shares still look cheap, but that's no temptation either. Until PAS can show it has more control over its future and a decent competitive advantage or strong growth, there are better options out there.
And one of those options also happens to be a retailer. But it definitely has the brands and strong growth that make it more attractive. It also happens to pay out fantastic fully franked dividends.
