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Pac Brands profit downgrade

Owner of the Bonds, Berlei, Jockey and KingGee brands amongst others, Pacifc Brands (ASX: PBG) has reported that it expects profit for the 2014 financial year to fall below the previous year’s.

Pac Brands, as it is more commonly known, announced at its AGM today that first quarter sales was below expectations, year-to-date sales were down on the previous period and much would depend on trading in the second quarter.

The company has had a rough time over the past five years, with the share price dropping 48%, compared to the S&P / ASX 200 Index’s (Index: ^AXJO) (ASX: XJO) rise of more than 35%. In 2009 the company faced a backlash from unions, after 1,850 staff were sacked, while at the same time the total remuneration for Pac Brands’ directors more than doubled. The company has also seen the previous CEO depart over that time, unable to turnaround the company’s performance.  CEO Sue Morphet stepped down in 2012 after the company reported a $450 million loss, which came on the back of a $132 million loss the previous year.

In the 2013 financial year it seemed the company had finally turned things around, with a net profit of $74 million, but that may have been a one-off.

Current CEO John Pollaers said at the AGM that preliminary indications are that first half earnings and net profit would be materially down compared to last year’s result due to weak trading conditions, a continued downturn in the Workwear market, and the non-renewal of some licences.

Pac Brands sells much of its product through retailers such as Kmart and Target – owned by Wesfarmers (ASX: WES) and Big W – owned by Woolworths (ASX: WOW), as well as the major department stores including Myer Holdings (ASX: MYR). But its brands have little competitive advantage, and consumers have been focused on price as much as anything else.

Foolish takeaway

Pac Brands operates in a tough business, not helped by low consumer confidence. It’s unlikely to get much better for the company anytime soon, no matter how hard it runs.

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Motley Fool writer/analyst Mike King owns shares in Woolworths.

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