Country Road cheers despite tough Aussie retail conditions

November 07, 2012 - Australia

In 2012 Australian retail conditions continued to be difficult. Although the fundamentals of the Australian economy improved with growing GDP, declining interest rates and low levels of unemployment, consumer sentiment remained soft with consumers continuing to cut back on their discretionary spending. 

Despite the tough conditions, we continued our strategy of reduced levels of discounting across Country Road and Trenery stores and our concession stores in Myer and David Jones. 

Address of Country Road’s Chairman:
We opened five new stores in South Africa, one in Australia and one in New Zealand and we invested in our online and digital business. We also closed a number of unprofitable retail and concession stores. These strategies have improved our margins and established a solid foundation for the business moving forward. 
Total sales grew to $419 million - up by 1.8% on the prior year as a result of our strong trading performance in South Africa. Total Australasian sales were down 2.6% on last year with comparable sales down 6.6%. Profit before tax was $20.5m, after costs of $1.5m were incurred as a result of the acquisition of the Witchery Group. Excluding these costs, profit before tax was down 3%. 
Throughout the year we improved our business efficiency. We continued to focus on reducing expenses and improving inventory control and this ensured that operating margin and profit were maintained broadly in line with the prior year. As a direct result of this, our cash position improved materially. 
Our online store performed extremely well during the year and following a relaunch of the site on 1 st August the customer experience is even better than before. We believe that online sales will continue to perform strongly in FY13. 
On 2 October 2012, Country Road completed the acquisition of the Witchery Group from Gresham Private Equity for A$172 million. The acquisition creates one of Australia's largest speciality fashion retailers with complementary brands and a strong position in the mid to upper tier specialist retail sector. Australia's apparel market is currently at a cyclical low, providing the opportunity for Country Road to consolidate its position ahead of the expected economic recovery. 
The transaction was funded through a combination of acquisition debt of $92 million and the proceeds of the $92 million 1 for 2 renounceable rights issue. I would like to acknowledge and thank shareholders for their strong support through participation in the rights issue Approximately 99% of entitlements were taken up by shareholders and we received oversubscriptions for the additional new shares.

We expect FY13 to be an exciting year for our business. On 2 October 2012, we welcomed lain Nairn, the former CEO of Witchery, as our new group CEO and Managing Director for the expanded group. Mr Nairn is an exceptional retailer with extensive international experience and an excellent fit for the combined business. As a result of this change, Howard Goldberg left the business. The Board thanks Mr Goldberg for the leadership he provided Country Road during his time as CEO and wishes him well for the future. 

Due to the acquisition of the Witchery Group, the Board has decided not to pay a final dividend. The total dividend paid during the year to 30 June 2012 was 7.58 cents per share. 
We have started the year well with Australasian comparable sales up 13.5% on the prior year. Total Australasian sales to 27 October 2012 were $116m (in AUD). In South Africa, our brands continue to trade well with comparable sales up 8.5% on the prior year. Total South African sales to 27 October 2012 were R196.1 m (in South African Rand). 
Going forward, we will focus on the successful integration of the Witchery Group, delivery of synergy benefits and profitable growth of the combined businesses.