Someone must have forgotten to tell Noni B Limited (ASX: NBL) about the retail recession with the apparel retailer posting double-digit increases in full year earnings dividends.
The results weren't enough to lure in investors though as the NBL share price fell 1.9% in thin morning trade before inching up 0.4% to $2.61 as the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index gained 0.3 % on optimism that the US and China would resume trade negotiations.
Noni B's results was probably overshadowed by Wesfarmers Ltd (ASX: WES) results with the consumer discretionary sector leading the broader market higher.
The good side of Noni B's results
The small cap retailer posted a 22% uplift in full year underlying earnings before interest, tax, depreciation and amortisation (EBITDA) to $45.5 million as revenue surged 136.8% to $881.9 million on the back of its acquisition of five brands from Specialty Fashion, now called City Chic Collective Ltd (ASX: CCX).
Investors can also expect another big uplift in EBITDA as management said it is on track to meet consensus expectations of $75 million on this measure for FY20.
Investors will also be pleased that Noni B has increased its dividends. It declared a fully franked 5.5 cents a share final dividend, which takes its full year distribution to 14.5 cents – or an 11.5% increase over FY18.
That puts the stock on a very decent yield of nearly 8% if you count the franking. What's more, there's nothing in the results to suggest that the dividend isn't sustainable around these levels.
"When we announced the acquisition of the Specialty brands, we conservatively expected them to break-even on an EBITDA basis in FY2019, returning to profit in FY2020," said Noni B's chairman Richard Facioni.
"We achieved anticipated synergies and merger benefits ahead of schedule and identified additional efficiencies, resulting in the five brands, collectively, making a positive earnings contribution for the year."
What investors may not like
Noni B is clearly better at bedding down acquisitions than the previous managers of Specialty Fashion. Shareholders with a long enough memory will remember the fiasco when Specialty Fashion bought Rivers for at a "bargain" price.
However, Noni B's results were messy as its statutory net profit crashed to just $8.1 million from last year's figure of $17.3 million. This is due to $9.1 million in restructuring costs and a further $10.6 million in additional depreciation charges.
Some may also be worried about the 4.3% decline in like-for-like sales (sales growth from stores that are opened for a year or more) as that's a key measure that retail investors watch closely.
Gross margins are also under pressure as cost of goods as a percentage of sales went up to around 44% from 36%.
This is something for investors to keep a close eye on as the group will need to demonstrate some margin recovery at the next results season.
Good thing management is making margin growth a priority.
