KUALA LUMPUR (Feb 16): Padini Holdings Bhd's net profit for its second quarter ended Dec 31, 2014 (2QFY15) dropped 42.9% on-year to RM16.21 million from RM28.4 million, following a substantial contraction in its gross margins, which resulted in its earnings per share deteriorating to 2.46 sen from 4.32 sen in 2QFY14.

This is despite the higher revenue that it recorded for 2QFY15, up 4.87% at RM245.59 million from RM234.18 million a year ago. 

The weaker earnings notwithstanding, Padini has declared a third interim dividend of 2.5 sen per share, to be paid on Mar 20, 2015 (entitlement date: March 6).

In a statement to Bursa Malaysia today, Padini said 2QFY15's higher revenue was from eight Brands Outlet stores and six Padini Concept Stores that were opened after Dec 31, 2013.

"That was achieved despite reduced contributions from the group's consignment business, single brand stores and domestic franchises," it said.

Nonetheless, Padini said its gross margins earned had fallen by about 6% year-on-year, reflecting its continued aggressive promotional and discounting activities, as well as increased clearance of slow-moving stocks.

"The substantial contraction in gross margins experienced currently resulted in profit before tax falling by 38.5% when compared to that earned during the same quarter last financial year," Padini noted.

As for its six months ended Dec 31, 2014 (1HFY15), Padini raked in a net profit of RM35.45 million, down 36.85% on-year from RM56.14 million, despite an improvement of 4.64% on-year in its revenue to RM472.34 million from RM451.4 million.

Clearance of slow-moving stocks had taken on an urgent priority as it was almost certain that after the imposition of the Goods and Services Tax (GST), disposal of such stocks would result in an even greater negative impact on margins since the GST on the sale of such stocks would be absorbed by the group instead of being passed on to consumers, it added.

Padini noted that its gross floor area under retail for the Padini Concept Stores and the Brands Outlets as at Dec 31, 2014 was 18% and 23% higher, respectively, than that as at Dec 31, 2013.

On prospects, Padini said the remaining half of FY15 and the first half of its 2016 financial year (1HFY16) would be a trying time as the economy comes to grips with the impact and the consequences of the GST.

"While it is generally believed that spending will contract, few are predicting the scale and the velocity of the impact; it is mostly "wait-and-see"," it added.

Its counter gained 2.08% or 3 sen to settle at RM1.47 today, translating to a market capitalisation of RM967.13 million.

(Notes: The Edge Research's fundamental score reflects a company's profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)