Retailing: Now For Some Good News —
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Retailing: Now For Some Good News

February 16 2012 - Australasian Investment Review – (AIR)

A busy day for retail-related companies yesterday with Westfield Groupleading the way in revealing a US joint venture and asset sales, with asset sales in the UK as well, plus reasonable 12 month results.Westfield Retail Trust, the 50% owned affiliate also had a solid year, despite the weak retail climate in Australia in particular.

Noni B, the small Sydney-based women’s wear group revealed better than forecast results, while The Reject Shop, the lower end discounter, also did better than some investors had expected, despite the weak trading conditions.

And also lifted earnings as the online car selling business grew.

Westfield Group stood out with its $US4.8 billion ($4.7 billion) joint venture with Canada Pension Plan Investment Board (CPPIB) for 12 of the group’s lesser performing malls in the US.

The company also announced the sale of its interest in three shopping centres in the UK for $240 million.

Westfield Group said it lifted its full-year net profit by nearly 40% to $1.532 billion in 2011 from $1.1 billion a year earlier.

While that helped the securities rise yesterday, investors were more enthusiastic about the company’s promise that the US joint venture and the comments that management would be looking for similar deals as it seeks to cut or reduce its exposure to existing markets, raise cash and re-invest in faster growing economies.

That helped the securities rise more than 5% or 44c to $8.81 yesterday.

The company recently started a move into Brazil and it has bought into Italy (which is hardly a new growth area compared with Brazil) as it seeks to expand outside its bases of Australia, NZ and the US. It has a presence in the UK which is now obviously on hold with yesterday’s sales.

Westfield Group’s US deal will see the Canadian group becoming a 45% partner in a group of 12 malls Westfield currently owns. Westfield said the deal will generate about $US1.85 billion of net cash for it to use in other expansion moves.

“We continue to look at attractive development and acquisition opportunities globally, and are well placed to deliver long term sustainable earnings growth,” Westfield’s Co-CEOs Peter Lowy and Steven Lowy said in yesterday’s statement.

Westfield Group said revenue rose more than 10% to $4 billion for the year, while funds from operations were $1.49 billion (or 64.8c per security).

The Co-CEOs said the profit result was at the upper end of the group’s earnings forecast and came despite increases in the Australian dollar’s value against the UK pound and US dollar in 2011.

The result was driven by a 7% rise in net property income, a 100% increase in the group’s property management income and a 92% lift in project income.

“2011 was a significant year for the Group. We continued to implement our strategy of increasing return on equity with the joint venturing of the £1.75bn Stratford City and the sale of Cairns (Australia) and Nottingham (UK),” the Co-CEOs said.

“Importantly, we expanded our business platform into strategic new markets with our entry into Brazil as well as our investment in major iconic retail development projects in Milan (Italy) and at the World Trade Center in New York.

“We will continue to appropriately manage our invested capital position, including introducing further joint ventures and dispositions of non-core assets, to deliver sustainable earnings growth and higher return on equity.”

Besides looking for new growth markets, Westfield Group says it will start work on up to $1.5 billion worth of new developments in 2012 and 2013.

Westfield Group also forecast an increase in distribution for the 2012 year to 49.5c per security from 48.4c per security in 2011.

The distribution to shareholders for the 2011 year was 48.4c per security.

There was an added boost for investors with a buyback of up to 10% of the group’s issued securities announced.

That added to the demand for the securities yesterday, which had a tough 2011, falling 18%.

Westfield Retail Trustsaw its securities rise 3% or 6c to $2.41 after it reported a profit of $851.7 million for 2011, its first full year of trading after the split from parent Westfield Group.The Trust said that profit equates to 27.9c per stapled security, a performance the group claimed yesterday had beaten expectations.

Distributable earnings for the 12 months was $561.6 million, or 18.39c per stabled security, WRT said in yesterday’s announcement.

Distributions for the 12-month period total 16.5c per stapled security, or 90% of distributable earnings for the period.

A final distribution of 8.4c per stapled security was confirmed yesterday.

Westfield Retail Trust Managing Director Domenic Panaccio said in yesterday’s statement that the trust delivered distributable earnings ahead of the forecasts provided to the market in December 2010.

“The Trust maintains a strong balance sheet with total assets of over $13 billion and its portfolio of 54 shopping centres across Australia and New Zealand has achieved comparable net operating income growth in 2011 of 4.3%.

“The Trust continues to see strong demand by retailers for its quality retail space, which is underpinned by the high productivity of the portfolio generating over $22 billion of retail sales annually.

“Over 2,800 lease deals have been completed in the past 12 months and the portfolio remains above 99.5% leased.

“Comparable specialty sales growth for the 12 months to December 2011 was 1.5% in Australia and 1.9% in New Zealand. The December quarter was the strongest period for the year with comparable specialty store sales growth up 2.0% in Australia and 4.8% in New Zealand.

“This result was delivered in a challenging operating environment and highlights the resilience and quality of the trust’s retail assets which have continued to deliver stable and consistent cash flows.

“Given the strength of the operating business and balance sheet, it was appropriate to change the distribution policy to allow for a payout of 100 per cent of distributable earnings from 2012 onwards,” he said.

The change is effective from the August 2012 distribution.

“The change in distribution policy reflects the trust’s commitment to implement prudent capital management policies that balance conservative gearing and a strong balance sheet with initiatives that drive returns for security holders,” Mr Panaccio said.

“Through active property management, the redevelopment of centres and ongoing capital management initiatives, the trust is in a strong position to continue to deliver earnings and distribution growth.” 

The Reject Shopshares jumped more than 7% yesterday after the company produced what was, on the whole, an upbeat interim profit report and outlook.The group revealed a 4% lift in first-half net profit and made clear it had survived the terrible impact of last year’s Queensland floods and the weak retail trading conditions on the past few months.

And while directors said yesterday that they expect those weak conditions to continue in the short term, the tone of the rest of the report was more confident than in 2011.

So the shares closed with a very sharp 84c gain, to $11.84, in a market that was sluggish all day and closed up just 10 points.

The company revealed more new store openings this year and expectations that full year earnings will be up sharply from 2011′s flood-hit figures.

The Reject Shop said net profit for the 26 weeks to December 25, 2011, was $16.55 million, up from $15.91 million in the prior corresponding period which closed off just before the floods in January 2011 wrecked the group’s new distribution centre at Ipswich, west of Brisbane.

“Pleasingly, the increase in profit was achieved despite operating without the use of the Company’s Ipswich distribution centre for the first few months of the half,” the company said yesterday.

“The Distribution Centre (DC) was flooded in January 2011 and was not operable until September 2011.

“This meant the Company’s ability to optimise trading was hindered by distribution capacity constraints, as well as requiring additional focus and resources in reinstating the facility during September and October.

“Sales for the half grew by 6.1% from $275.9 million to $292.8 million.

“First quarter sales were significantly impacted by uncertainty over the timing of the reopening of the Ipswich distribution centre and restricted capacity to service stores.

“The positive second quarter comparable store sales of 1.0% reflected a strong seasonal trade supported by improving distribution capacity as the Ipswich distribution centre was progressively reinstated.”

The Directors declared a fully franked final dividend of 24c a share (a 50% payout ratio). That is consistent with the final for 2011.

Directors said they “believe a prudent approach to capital management should be maintained in the short term and the current dividend ratio will remain at least until the final dividend payment”.

And the group expected the first half improvement in earnings to continue this half.

“Based upon the first half trading result and a prudent sales forecast for the second half inclusive of the increased marketing activity, we expect we can achieve NPAT of between $20.5m and $22.0m, inclusive of a 53rd week this financial year, up 26.8% to 36.0% on prior year.

“This equates to a 52 week NPAT forecast of $19.0m to $20.5m (up 17.5% to 26.8% on prior year).

“We are expecting another challenging half.

“Nonetheless, we have re-established our base operating platform; are now in shape to focus on day-to-day trade more readily; and can resume progress on identified initiatives deferred as a result of the flood,” CEO Chris Bryce said in yesterday’s statement.

Noni Bmanaged to produce an interim profit at the top of the confident guidance issued last month. The small retailer posted a first half profit of $2.4 million for the six months to January 1.The result was over 60% ahead of the $1.5 million for the first half of 2010-11 and above the guidance of between $2.1 million and $2.4 million provided last month.

That improvement saw interim dividend boosted to 2.5c a share from, the 1c a share paid for the six months to December 2010.

Revenue rose by 2% to $64.1 million, compared with $62.9 million for the first half of 2011, with comparable store sales in line with the previous year.

‘‘This improvement in profit, despite weak consumer confidence, resulted from higher margins and tighter control of expenses following wide-ranging initiatives to improve performance,’’ Noni B joint managing director David Kindl said in a statement.

‘‘Our margin improvement reflects our focus on customer service and the superior style, fit and quality of our clothes which help today’s busy woman to look and feel special. These combine to differentiate Noni B, attracting customers and reducing the need to discount.’’

Mr Kindl said to improve sales and customer satisfaction the company had increased communication with store staff and streamlined operations so executives were able to provide greater support to the sales team.

‘‘Several of the initiatives we have adopted to improve performance have originated from our staff. These include our styling by appointment service, now available throughout our network, which has proved very popular with customers and helps us to align rosters more closely with demand.’’

He said Noni B was well placed to improve its performance as demand recovers. The company had negotiated a number of store leases during the half on more favourable terms.

The shares rose 7c or 7.6% yesterday to 73c.

And finally, online car retailer Ltdhas boosted interim dividend by around 20% after revealing a 20% lift in first-half net profit.The group will pay shareholders an interim dividend of 11.3c a share, up from the 9.4c a share paid for the December 2010 half year.

The company said yesterday that net profit for the six months to December 31, 2011 was $33.06 million, up from $27.65 million in the prior corresponding period.

Revenue rose 22% to $88.04 million, said in a statement yesterday, and directors expect the solid trading performance to continue for the rest of the financial year.

“In relation to the expected performance of the company in the second half of the 2012 financial year, the company anticipates that revenue and NPAT will once again be well up on H2 FY2011,” said.

The guidance was on the assumption that existing market conditions remained constant.

The shares rose to a high yesterday of $5.29, a gain of more than 4%, before losing ground in afternoon trading to end down 8c or 1.5% at $4.98

This Information is provided to you by the Australasian Investment Review (AIR). Subscriptions are free.AIR reports about financial markets and investment products in the widest sense possible. The AIR website and all its contents is prepared for general information only, and as such, the specific needs, investment objectives or financial situation of any particular user have not been taken into consideration. Individuals should therefore talk with their financial planner or advisor before making any investment decision.


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