Best & Less blames sales slump on lockdowns, consumer caution … and cold weather
No-frills retail empire Best & Less has so far managed to navigate the Christmas supply chain crunch, but the family fashion favourite this week found itself ruing a different kind of speed bump.
The mum and kids’ clothing chain admitted to investors that it was likely to undershoot its first-half sales targets in part because a cold snap had delayed people from forking out on its new summer range.
An unseasonably chilly spring – which has particularly affected Victoria, South Australia and Tasmania – was one of several hurdles flagged by Best & Less in its trading update this week as it approaches its most crucial trading period since making a rollicking start to life as an ASX-listed company.
The firm – which counts retail mogul Brett Blundy as a director and investor – nearly doubled in value in the three months between its July ASX debut and a peak share price of $4.33 on Wednesday November 10, even as major retail centres of Sydney and Melbourne endured rolling Delta lockdowns.
On Tuesday, however, the company was forced to announce it was likely to miss several targets set out in its first half IPO prospectus, a stark contrast to the confidence on display just four months earlier.
The lacklustre trading update exacerbated what had already been a steep share price decline for the company, with Best & Less Group losing about $110 million in value in the five ASX sessions to Wednesday evening.
It was the company’s most significant slide since private equity firm Allegro Funds floated the retailer in July, and a likely source of frustration for shareholders who had so far only seen their investment climb and climb to unseen highs.
Australians of course know Best & Less as a no-frills family clothing store that adorns shopping centres and main streets across the country.
Much like the group’s New Zealand offering, Postie, Best and Less has a long and storied retail history, with entrepreneur and businessman Berel Ginges opening the first store at Parramatta in 1965.
Over the next five decades the chain cemented itself as a national favourite and became renowned for its simple in-store decor and strong offerings across babywear essentials, kidswear, and fashion for mums.
The company was bought by local investment house Allegro in 2019 and finally made its debut on the stock market four months ago to a chorus of investor enthusiasm.
But the unavoidable impact of covid lockdowns has been a handbrake, with Best & Less losing a combined 9,272 trading days across its network of 245 Australian and New Zealand stores during Delta.
That’s more than a quarter of the available trading days down the drain, with Best & Less only able to keep a portion of its network open because it was not deemed an “essential retailer”.
Long-time chief executive Rod Orrock on Tuesday told analysts that matters had not been helped by major storm damage suffered at the company‘s Mount Druitt store in Sydney and Toormina shopping centre.
But, ultimately, he blamed the virus for the most significant lag on pro forma underlying sales, earnings and net profit.
“We assumed … that the lockdowns and restrictions would extend to the end of (September),” Mr Orrock said.
“That has obviously not been the case.”
Mr Orrock said consumer behaviour had remained decidedly cautious in the weeks since lockdowns were lifted with regional Best & Less locations suffering more on account of lower vaccination rates and fewer city visitors.
That said, there have also been signs of recovery ahead of the Black Friday and Christmas rush.
“Black Friday is where you actually get going, it’s a critical week in terms of what happens in the next four or five,” he said.
Only six trading weeks remain in the December half of the financial year and, even though it is responsible for roughly 40 per cent of the company’s sales, Mr Orrock has ruled out closing the gap over the period.
Nevertheless, he expects to achieve full-year pro-forma earnings expectations of $62.4 million and net profit of $41.3 million respectively, subject to there being no further unanticipated events impacting customer shopping behaviour.
“While restrictions have eased and we’re seeing a bounce back to trading activity … we continue to see a cautious consumer,” Mr Orrock said.
“Despite the number of days lost, we‘ve continued to focus on crawling what we can control and not becoming a victim of the circumstances.”
The company also expects widespread media coverage of the nation’s supply chain troubles to encourage its addressable market of 4.9 million mums in Australia and New Zealand to shop in store and via click and collect.
Mr Orrock said toddler and kidswear sales had improved in recent weeks as families become increasingly confident that they will have a Christmas Day, and be able to mix with family and friends.
The headline-stealer from Tuesday’s update, however, was Mr Orrock’s lament over summer’s late arrival – although that too was delivered with a positive spin.
“Certainly I would like to see a bit warmer weather for summer fashion at this point,” Mr Orrock told analysts gathered for the call.
“If you are from Sydney up it is reasonably warm, but if you are from Sydney down it is pretty cold still, so summer fashion we still have that to look forward to.”
Originally published as Best & Less blames sales slump on lockdowns, consumer caution … and cold weather
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