Apparel retailer Specialty Fashion Group Ltd. (ASX: SFH) tumbled to a two-year low as management failed to inspire confidence about the embattled Rivers business and withheld paying a dividend.
The decision not to pay an interim dividend is concerning. As I wrote in January, it's not so much what management says about the outlook for the Rivers chain but its decision on the dividend that will be the most telling.
What we can take from today's news is that the turnaround of Rivers is likely to take longer than what most were anticipating and management is using the extra cash to invest in Rivers and pay down debt.
The stock got sold off 2.1% to 68.5 cents ahead of the close even though there were some bright spots from the result.
Firstly, the group is enjoying good growth across its brands, apart from Rivers. Same store sales are up a respectable 5.7% as total revenue jumped 27.4% to $413 million.
While the group reported a 63.9% plunge in net profit to $5.9 million due to heavy discounting of Rivers' stock as management attempted to clear inventory bought by the previous owners of the business, both the top and bottom lines were ahead of my forecasts.
Not that anyone was really paying attention. The lack of guidance for the Rivers business, which was acquired last year, is making the market nervous. I for one was hoping to see the light at the end of the tunnel by now.
I am not even sure if we will get more certainty when management hands in its full year results in August.
This doesn't mean there is little value in Specialty Fashion, which owns a range of other women's apparel brands such as Millers, Katies and Crossroads. If management can get the old and tired Millers brand back on the path to growth, I believe they can revive Rivers. Both brands appeal to budget conscious shoppers.
If the stock dips further towards 60 cents, I think it will make a compelling buy for investors with patience.
