Specialty Fashion Group shares have soared after the womenswear retailer said it expects its first-half profit to nearly triple despite sales remaining flat.
The shares were up 24 cents, or 34.3 per cent, to 94 cents in early trade as the company demonstrated its recent cost cutting efforts are yielding results.
The owner of the Katies and Millers fashion stores expects its net profit for the six months to December 31 to be in the range of $17 million to $18 million compared to $6.2 million for the prior first half, it said today.
Sales revenue in the group's 892 stores was up two per cent to $119.7 million although the increase reflected an extra week’s trading for the December half compared to the prior period.
"Our continued focus on our strategies to improve sales, margins and costs of doing business has meant we have delivered a significant turnaround in trading performance," chief executive Gary Perlstein said in a statement.
"The economic uncertainties and structural changes affecting retail have not gone away, but we have pulled all the levers within our control to achieve sustainable improvements and our results reflect this."
All retailers are being forced to cut costs to match despondent conditions, but those who succeed are being rewarded handsomely.
Another women’s fashion group, Noni B, engineered a surprise profit upgrade last January that lead to the stock doubling over the past year, but the stock took a battering Thursday after it disappointed the market with an earnings forecast 30 per cent below the prior first half.
JPMorgan said cyclical and structural issues would continue to impact the retail sector this year.
It said that while local consumers are ‘‘well positioned’’ compared to their international counterparts the broader position is mixed with rising unemployment and cost of living pressures to remain challenging despite falling interest rates.
SFG said a major contributor to the profit growth was changes made in the company's supply chain, which delivered reduced product cost prices and freight costs. Falling cotton prices had also reduced the cost of fabrics.
Higher selling prices also contributed to the group’s gross profit margin improving 477 basis points to 62.4 per cent - the highest in SFG’s history, the company said.
Increases in the company’s cost of doing business increased just 1.2 per cent despite underlying annual inflation in wages and rentals of between 3 and 4 per cent.
A further 150 basis point improvement is expected for the current half year.
Online was another standout performer for the group with sales increasing to $11.3 million, equating to 3.6 per cent of total revenue.
Specialty Fashion Group is due to release its finalised first-half financial results on February 18.