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Specialty Fashion Group shares hammered in “toughest retail environment”

Specialty Fashion Group Limited shares are hammered as it sees disappointing Christmas sales in a very tough retail environment.

What: Specialty Fashion Group Limited (ASX:SFH) announced on 18th Jan 2012 that comparable store sales for the six months to December 2011 were down 4.5% compared to the first half of the prior year.

Christmas sales were disappointing and also lower than last year, although the company declined to state by how much. Gary Perlstein, CEO said: “This is the toughest retail environment we have seen.”

The company also announced that it was aggressively ramping up its online presence, with a target of achieving 15% of sales online over the next three years.

In line with the ramp up of its online presence, Specialty Fashion stated that it will close or re-size up to 120 stores to reduce its costs of doing business, and the pace of expansion of new stores is likely to be slower unless they can achieve lower store rental costs. (The company used the words “rationalise” when talking about closing or re-sizing stores. Are they trying to fool the market that its not as bad as actually is?)

Specialty Fashion advised that EBITDA for the first half of 2012 to be in the range of $21m-$22m.

The company
Specialty Fashion Group is the largest specialty retailer of women’s fashion in Australasia, through brands such as Millers, Katies, Crossroads, Autograph, City Chic and La Senza. The company operates 900 stores throughout Australia and New Zealand.

So what: Myer Group Limited (ASX:MYR) and David Jones Limited (ASX:DJS) are the two most talked about retailers struggling in this environment, but they are not alone.

Specialty’s announcement is confirmation that retailers in Australia are facing very tough conditions, and they are being forced to adapt quickly or die. The strategy to move more sales online may have come too late, and Specialty Fashion may struggle for the foreseeable future.

An interesting takeaway is that Specialty Fashion Group is looking to reduce the rents it pays, and if it can’t, it may close some stores.

Given many of its stores are located in shopping centres, this could have a negative flow on effect for companies such as Westfield Retail Trust (ASX:WRT), Westfield Holdings Limited (ASX:WDC) and CFS Retail Property Trust (ASX:CFX).

Now what: The Specialty share price has now fallen 60% in the last 12 months, and there are good reasons to be concerned about the company. Falling sales and the closure of stores show it is struggling to adapt to this new, tougher retail environment.

Only time will tell whether the company’s moves to sell more online and store “rationalisation” will save them.

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 Motley Fool contributor Mike King fashionably does not own shares in Specialty Fashion Group. The Motley Fool’s purpose is to educate, amuse and enrich investors. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Click here to be enlightened by The Motley Fool’s disclosure policy.

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