Here’s why Speciality Fashion Group Ltd. has crashed today

What: The full-year results of Specialty Fashion Group Ltd. (ASX: SFH) were not received well by the market this morning with investors selling the shares down 10 cents or 9.9% to be trading at 91 cents. Despite a 20.3% rise in revenue to $685 million, the company reported a net profit of $12.5 million, which was down 3.8% from last year.

So What: Financial year 2014 proved to be somewhat of a difficult year for the group, which owns brands including Millers, Rivers and City Chic. On the back of volatile consumer confidence and harsh retail conditions in general, comparative store sales growth declined by 0.7% for the full year as a result of a weak first half. Pleasingly, sales rose in the second half and have continued strongly in the first few weeks of FY15.

After having bargained down the price it would pay for Rivers Group (from roughly $5 million to $3.9 million), Specialty Fashion was forced to aggressively discount stock to clear its warehouse to make way for new products. The company expects this will continue for the first half of FY15 and does not expect any improvements to be recognised until the second half of the financial year.

Here are some of the other notable highlights from the report.

  • Earnings before interest, tax, depreciation and amortisation (EBITDA) at $39.2 million
  • Basic earnings per share (EPS) at 6.5 cents
  • Growth in online sales to $31.2 million (representing 4.6% of total revenue)
  • Final dividend of 2 cents per share, giving it a total dividend of 4 cents per share

Now What: Although today’s result was disappointing, it was pleasing to see sales improving in the second half and into the first half of FY15. While the company will focus on rejuvenating its brands over the coming year, as well as expanding its City Chic chain beyond Australia, Specialty Fashion could be one for investors to watch.

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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned.

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