BGP Half Year Release

[Full NZX release with charts: BGP_Announcement_to_NZX_Jul18.pdf]

Half Year Review

Highlights for the 26 week period ended 29 July 2018:

• Total sales $293.20 million, +4.31%

• Same store sales growth, +2.46%

• Gross profit $120.00 million, +5.21%

• Gross profit margin 40.93% vs 40.58% last year

• EBIT $40.62 million, +3.80%

• NPAT $29.34 million, +2.68%

• Interim Dividend 8.00 cps increase from 7.50 cps last year, +6.67%

The directors of Briscoe Group Limited (NZX/ASX code: BGP) announce a record net profit after tax (NPAT) of $29.34 million for the half-year ended 29 July 2018. This compares to last year’s $28.58 million half year result. The half-year results are unaudited.

The directors have resolved to pay an interim dividend of 8.00 cents per share (cps). This compares to last year’s interim dividend of 7.50 cps. Books will close to determine entitlements at 5pm on 4 October 2018 and payment will be made on 11 October 2018.

The earnings were generated on sales revenue of $293.20 million compared to the $281.08 million generated for the same period last year. On a same store basis the Group’s sales for the half year ended 29 July 2018 were 2.46% ahead of the same period last year.

Earnings before interest and tax (EBIT) of $40.62 million were generated for the six months to 29 July 2018. This compares to $39.13 million for the same period last year and represents an increase of 3.80%.

Gross margin dollars has increased 5.21% for the period with gross margin percentage increasing from 40.58% to 40.93%.

The increase in gross margin percentage reflects improvements in stock-loss measurements as a result of improved loss prevention initiatives as well as operational strategies focused on optimising inventory availability in relation to online fulfilment stores and promotional programmes.

In the period under review, homeware sales increased 4.58% from $178.53 million to $186.70 million and sporting goods sales increased 3.85% from $102.55 million to $106.50 million.

On a same store basis, homeware sales increased by 2.28%, while sporting goods sales increased by 2.80%.

The recent introduction of accounting standard NZ IFRS 15: Revenue from contracts with customers now means sales revenue reported by the Group will include delivery fees charged to online customers for the delivery of products purchased directly online. The corresponding cost incurred by the Group for delivery of product to customers will be included in the total cost of goods sold. Previously these amounts were offset and the net-cost shown as a store expense. The reclassification will have the effect of increasing sales revenue and cost of goods sold, while decreasing gross profit and store expenses.

There is no impact on the Group’s reported net profit after tax. The table below shows the effect of the reclassification on selected Group reported amounts for the first half of both this year and last year.

Inventory levels have been well controlled and as at 29 July 2018 were $85.01 million, only slightly higher than the $84.95 million at the same time last year. This total includes the impact of three additional stores opened by the Group since July last year – the Briscoes Homeware stores in Rangiora (September 2017) and Glenfield (December 2017), a Rebel Sport Store in Kerikeri (February 2018) and the closure of the Living & Giving store at Riccarton in March 2018.

Rod Duke, Group Managing Director, said: “Despite the ongoing competitiveness of the retail environment and increasing negative economic indicators testing consumer confidence, overall we are satisfied with the record sales and profit achieved for the first six months.

“We’re delighted to welcome Fiona Stewart to our senior executive team as GM Marketing and Strategy. Fi has a strong marketing background and will definitely help us to improve the way we focus on, and communicate with, our customers.

“We have progressed and completed a number of store projects during this first half. February saw the opening of a new Rebel Sport store in Kerikeri. Situated alongside our Briscoes Homeware store the new store was well received by the local community and has performed well since opening.

“During this half we completed a full refurbishment of our Briscoes Homeware store in Rotorua. This included online fulfilment capability which was also established at the Rotorua Rebel Sport store and the Glenfield Briscoes Homeware store in Auckland.

“Work continued on some major Group owned property projects during the half. Excellent progress is being made on the build to replace the Group’s Support functions in Taylors Road, Auckland. The new offices and retail space are on track for the support office to relocate by September 2019 before the temporary relocation of the existing Briscoes Homeware store to allow for its complete rebuild.

“Resource Consent has been obtained for our project to establish Briscoes Homeware and Rebel Sport stores at Silverdale, north of Auckland. A building consent has been lodged and we are hopeful of being able to open for trade early in 2020.

“During the second half of the year the existing Briscoes Homeware store at Northlands in Christchurch will relocate to the new North Link Retail Centre at Papanui where a new Rebel Sport store will also open before Christmas 2018.

“A lease agreement has been signed to establish new Briscoes Homeware and Rebel Sport stores on a site in Mt Roskill, Auckland. We anticipate these stores opening by the end of 2019.

“During the six months we received a dividend of $1.71 million from our investment in Kathmandu Holdings Limited. An additional tax expense has been incurred for this half compared to last year as a result of this interim dividend not being fully imputed for New Zealand shareholders. As a result of our participation in the recent equity raising and the subsequent share purchase plan, our investment in Kathmandu now represents a shareholding of 18.90%. As the largest single shareholder we continue to note the significant improvement in Kathmandu’s trading performance, in particular its most recent full year result.

“We remain focused on initiatives which we believe will continue to ensure we are the first choice for homeware and sporting goods in New Zealand. Several examples of these include; an innovative research project to help us better understand the rapidly changing markets in which we operate and the customer behaviour within those markets, continuing to build the knowledge base of our teams and ensuring we continually offer a safe working environment for our staff and customers, and the extended trial of the ‘Click and Collect’ initiative to ensure customers can shop with us however they choose to.

“We continue to experience excellent growth through our online channels which are now approaching 9% of total Group sales. Continuing to increase the number of fulfilment stores has helped to improve online capacity and further additions are planned for later in the year. We are excited with our initiative to replace our online platform this year and we are progressing well to have this completed by the end of our financial year. This is a major project for the business which will deliver improved online process, functionality and customer experience as we look to maintain the impressive sales growth currently being achieved.

“The economic outlook for the second half remains uncertain with flagging consumer confidence, increased industrial action, record-high fuel costs, increased wage pressures and a lower New Zealand dollar, all factors which will test retailers’ ability to maintain margins. We are obviously addressing any additional costs as they arise, including any employee entitlements and provisioning appropriately. Despite these challenges we are confident that we have the right programmes in place to continue to maintain market share and to deliver the quality products, service and shopping experience to ensure improved bottom line profit and returns to shareholders.”

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