News from the industrials side of the market yesterday with shades-maker Gale Pacific (ASX:GAP) and discount retailer Best and Less (ASX:BST) each disappointing the market.
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Gale Pacific (ASX:GAP) – a maker of blinds, shades and outdoor protection products – has been hit by a combination of the lingering end of La Nina, weakening consumer demand, especially in its key US markets and cost pressures which have hurt in key markets.
Gale Pacific told the ASX yesterday that it now expects profit before tax for the 2023 financial year to be in the range of $4.2 million and $5.2 million.
“Second half profit before tax is expected to be between $3.6 million and $4.6 million, reflecting an anticipated revenue decline of approximately 15% compared to the second half of FY22,” directors said in Wednesday’s statement.
Gale said the updated guidance “compares to previous guidance which stated that second half and full year 2023 revenue and profit before tax were expected to be comparable to the second half and full year of FY22.”
The company’s first half was hit hard by the impact of the full La Nina which dampened demand across the board, dropped revenue and crunched earnings.
But, as the company said in Wednesday’s update, the second half has seen more pain.
“Further to the update in February, macroeconomic factors, including the continued rising interest rate and inflationary consumer price environment across the Company’s core markets of the United States and Australia, have adversely affected consumer spending patterns across home improvement categories while larger than anticipated on-hand inventory destocking and working capital improvement initiatives across key customers resultant from improved global supply chain capacity adversely impacted the Company’s second half result.”
“These macro factors, combined with historically unseasonably cool and wet weather patterns across the western, southwestern, and southeastern portions of the United States, the Company’s largest US markets, and continued elevated retail shelf pricing due to input cost increases incurred over several years has resulted in year-over-year unit sell-through decline which negatively impacted the second half result to a greater degree than forecasted.
“The Company’s initiatives to better match production capacity to demand, more tightly manage working capital and draw down existing, on-hand inventories are progressing as anticipated throughout the second half with material improvement in international shipping rates and capacity anticipated to benefit results in the 2024 financial year,” Gale said.
The shares fell 4% to 24 cents.
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For all intents and purposes, the takeover offer for Best and Less (ASX: BST) is over as the insiders bidding for the company have been assured of meeting their minimum condition of acceptance of 55% of the issued shares (they control most of that holding anyway).
Which made the trading update yesterday even more of a surprise and you have to wonder if its gloomy tone – forecasting a drop in second half net profit of up to 40% – was designed to encourage other shareholders to take notice and accept into the $1.89 a share bid when it emerges.
The company told the ASX yesterday that for the 19 weeks of trading to date in current second half of 2022-23, total sales of $221.9 million, were up 1.8% on the prior corresponding period but Like-for-like (LFL)sales were down -1.4%, with store LFL sales up 0.4% and online sales down 18.2%.
“Trading conditions were inconsistent throughout March and April, before improving in the lead up to Mother’s Day. May LFL sales are -1.8% below the previous corresponding period, with BLG’s core non-discretionary product lines continuing to perform well.”
“Recent trading in May has been encouraging, including a strong Mother’s Day trading performance.
“However, based on results to date and with only seven weeks remaining in the second half, the Company now expects to deliver pro forma net profit after tax of between $10 million and $12 million for the current half, “noting that May and June are key trading months and assuming no further material deterioration in economic conditions that impact sales.”
“This compares to pro forma net profit after tax guidance of between $18 million and $20 million provided at BLG’s first half results on 21 February 2023.
The company’s Executive Chair, Jason Murray (who is supporting the bid) said in the statement to the ASX: “While trading conditions have remained inconsistent as consumer confidence has been at historic lows, we had a strong Mother’s Day.”
“With the Federal budget expected to provide some much-needed relief for our core customers and a further four new stores due to open before the end of the calendar year, we are optimistic about the outlook for sales growth. We expect to see the benefits of lower product and shipping costs begin to flow through in the first half of FY24 and we will remain focused on tightly controlling our cost base to preserve profitability.”
On the bid, the company said it “continues to work cooperatively with the Bidder to jointly despatch the Bidder’s Statement and BLG’s Target Statement (including the Independent Expert Report) in the near term”
“BLG shareholders do not need to take any action in connection with the Takeover Offer prior to receiving these documents.”
The shares ended the day at $1.87, down 3.8% as some in the market realised the chances of a counteroffer have gone.