Friday 29 Mar 2024
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This article first appeared in The Edge Financial Daily, on November 19, 2015.

 

KUALA LUMPUR: Apparel retailer Padini Holdings Bhd, whose brands include Padini, Vincci, Seed and Miki, expects the current financial year ending June 30, 2016 (FY16) to be more challenging than FY15 as margins continue to compress due to absorption of the goods and services tax (GST), and the weakening ringgit which has affected the cost of goods.

“This financial year is going to be more difficult than FY15 as the weakening ringgit is affecting the cost of goods due to higher import costs,” its executive director Chan Kwai Heng told reporters after the group’s annual general meeting yesterday.

Padini saw gross margins in the fourth quarter ended June 30, 2015 (4QFY15) fall by about 2% year-on-year, given that prices of its products sold pre- and post-GST had remained the same.

Nevertheless, Chan said the group has no intention of raising prices this year, particularly in light of the poor consumer sentiment following a series of price hikes in tolls, fuel, and more recently cigarettes.

“We are more focused on driving top-line growth, and have no plans to increase our prices in the short term in order to remain competitive,” he said.

Rather, Chan said the group would look at other measures such as looking for cheaper sources, paying less agent fees, and selling online to compensate for the reduction in gross margins.

For FY16, Padini will spend RM40 million to open 16 new stores, comprising nine Brands Outlets and seven Concept Stores. Year to date, the group has opened two Concept Stores and three Brands Outlets.

“However, the investment depends on whether the shopping malls will be completed on time. Otherwise, some of the investments will spill over to the next financial year (FY17),” said Chan.

Chan declined to give forecasts for FY16, except that it expects higher revenue to be generated and to sustain its profitability.

“We are opening more stores. If we can continue to deliver top-line growth, then [our] bottom line can actually be maintained,” he said.

The fashion retailer is due to release its 1QFY16 results next week.

Due to aggressive promotional and discounting activities, Padini’s net profit for FY15 came in lower at RM80.22 million, down 11.8% from RM90.91 million in FY14. Its gross margins shrank by 3% to 5%.

According to Chan, margins for the group’s products are about 40%.

On the group’s exit from its food and beverage (F&B) business, Chan said the management wanted to focus on its present apparel business amid challenging times.

The group ventured into the F&B line in 2000, but in March closed down its Seed Cafe operations. According to its annual report 2015, the F&B operations had incurred a loss of RM582,000 in FY15, up 8.8% from the amount lost in FY14.

“We felt that we are not ready to go into the F&B business, and we don’t want to further divert our resources as the present (retail) business is getting more challenging,” said Chan.

Padini has been trading in a 52-week range of RM1.28 to RM1.81. The stock closed up 1.25% at RM1.62 yesterday, bringing a market capitalisation of RM1.07 billion.

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