After seeing the progression of the turnaround of the company's core brands for over a year now, we were not surprised by the strong result released by Pacific Brands for the half. The market did reward the results, with an increase of 13.5% in the share price since the announcement.
Overall sales grew 8.6%, with Bonds and Sheridan growing sales 22% and 10% respectively. Retail and online channels were strong, with wholesale holding its own.
Management of the impact of the Australian dollar decline has been more successful, with less of a lag, than we thought would be the case. Price increases, along with manufacturing efficiencies and product mix have assisted this. That said, there does remain some pressure in the coming year, as hedging benefits roll-off.
Overall margin gain, along with lower interest costs (lower debt) translated into a step up in net profit. Given the company's now strong balance sheet, the (fully franked) dividend was pleasingly reinstated, on a 60% payout ratio.
Trading for the six weeks of the current half was up 8% on the pcp. May and June trading will be a big influence on the H2 result however. The company is forecasting earnings before interest and tax for the full FY-16 year of between $73m and $75m. This represents growth of between 13.7% and 16.8% on FY-15.
The investment rationale of our ownership of Pacific Brands is transitioning, as the successful turnaround implemented by the company's management is now evident. From a company with core undervalued assets (brands) and strong management, the opportunity now is the growth in earnings that can be delivered.