The incredible shrinking Specialty Fashion Group
If anyone had the appetite to buy up second-tier Australian retailers on the eve of Amazon’s launch, you’d think Specialty Fashion Group would be ripe for a takeover, such as the one that failed to materialise earlier this year.
Its shares are trading at one-third of the level they reached in February, when the company revealed it was in the early stages of takeover talks.
And shareholders seem somewhat irate. They belted Specialty Fashion with a massive 51 per cent strike against its remuneration report at Tuesday’s annual meeting, at which retiring CEO Gary Perlstein announced the closure of 300 stores, 159 of which he said were losing money despite cost-cutting efforts.
The retailer’s woes had us looking through its annual report, where we discovered it had audited inventories of $90.8 million at June 30 across its brands, which include Katies and Rivers.
It had another $57.3 million of assets in property, plant and equipment. Its market cap on Wednesday? Just $38.5 million! And to think Qatari vehicle Al Alfia Holdings made an initial offer of 70¢ a share, or $135 million, for the group in February.
The group’s goodwill and other intangibles provision stood at $23 million and hasn’t been significantly downgraded in years.
The company also has bank loans of $25.7 million, as part of a $52 million credit facility with NAB. Which, on the current trajectory, means the company only has to trade a few more months before its market cap is lower than its outstanding loans (the directors state in the annual report that they believe it isn’t at risk of breaching its banking covenants).
However, even on such a dramatically reduced sharemarket valuation, you can understand no one being too opportunistic when it comes to Australian retail. As RBA governor Phil Lowe said on Tuesday night, price deflation on Australian consumer goods still has some way to go.