Noni B latest chain to slash profit forecast as new figures show most retailers trading under 2009 levels

Retailer Noni B has joined a growing chorus of businesses downgrading their profit forecasts, with the company saying rampant discounting and unseasonably cool weather has caused the latest change.

The market update comes as retailers are bracing themselves for a shocking Christmas, with the Australian Retailers Association releasing new data yesterday showing just under 65% of retailers are trading below where they were at this point last year.

Noni B said in a statement yesterday the chain now expects after tax profit of between $1.5-1.9 million for the first half of the 2011 financial year, with comparative store sales down 2.5% over the year.

“Demand has been affected by low consumer confidence since the Federal Election, the recent increase in mortgage rates and the cool, wet weather which has delayed purchases of the company’s new summer ranges.”

“Margins have also been impacted by discounting in order to maintain sales volumes, although the company’s conservative inventory position has enabled it to avoid the worst of the unprecedented discounting that has taken place in the market.”

The update comes just weeks after managing director David Kindl told shareholders that a 0.5% fall in comparable store sales to October was a “creditable performance”. In June the company even said after-tax profit would grow from between $3.4 million to $3.8 million, up from $2.3 million in 2008-09.

Noni B is just the latest retailer to downgrade its forecasts. Over the past few months, several businesses have issued gloomy predictions for the Christmas rush:

• Billabong this month said profit would drop 8-13% in the six months to December 31, sending shares plummeting nearly 10%.
• Shares in The Reject Shop dropped a shocking 25% after the company said profit would drop from between $26.26.5 million to $21-22 million.
• Country Road former chief executive John Cheston issued a profit downgrade just three weeks into his role in July, with the company also recording a 20% drop in profit over the entire financial year.
• Earlier this year Target reported same store sales had dropped by over 6% in the year to July.
• In October, Harvey Norman reported that like for like sales in the first quarter of the 2010-11 financial year, compared with the previous corresponding quarter, were flat.
• Department stores are also suffering, with Myer reporting a 1.74% dip in like-for-like sales in the three months to October.

These announcements also come as the Government has sparked a retail inquiry into the current level of GST imposed on imports, after several veterans including Gerry Harvey and Solomon Lew have said online retail is hurting Australian business.

Continued discounts have also continued to hurt retailers, as evidenced by Noni B’s latest update. The Australian Retailers Association has said this morning that shoppers are expected to spend $6.97 billion through the two weeks of post-Christmas sales – up 3% from the same period last year.

But executive director Russel Zimmerman also says many retailers have brought their sales forward, dampening the effects of post-Christmas sales.

“Defying tradition, many retailers have already held sales in the lead up to Christmas and they will continue to slash already discounted prices with very generous post-Christmas bargains.”

“With retailers having to move stock left over from a sluggish Christmas, from a consumer point of view, Boxing Day and beyond could host some of the best post-Christmas sales in years.”

The ARA has also released figures showing retailers are expecting a worse Christmas than last year Just under 24% are trading above 2009 levels, and 10% are trading the same as last year – over 65% are trading under 2009 levels.

“These final days will be critical if retailers are to meet projections of $39.9 billion in national retail sales for the Christmas trading period,” Zimmerman said. “Traditionally consumers do leave their shopping until the last minute so retailers have all their fingers and toes crossed that shoppers will be rushing to the tills and taking advantage of extended trading hours.

“By all accounts this hasn’t been a very joyous Christmas for retailers who are slashing prices pre-Christmas just to get consumers in the door.”