PacBrands Offshore Plan Failure
21 Jul 11
PACIFIC Brands' decision to sack thousands of Australian staff and move its manufacturing to China has failed to improve the embattled clothing group's earnings, says a senior analyst.
Merrill Lynch analyst David Errington, a long-time Pacific Brands critic, yesterday tipped the company's operating earnings to plummet by more than $80 million to about $100 million this financial year.
Pacific Brands has culled many of its brands to focus on iconic labels, including Bonds.
Mr Errington said the brand axing allowed new competitors, offering lower prices than Pacific Brands, into the market. ''Kmart is one key customer that has discontinued Bonds and other PacBrands products,'' he said in a client note.
While the underwear and hosiery market grew more than 2 per cent last year, Pacific Brands' key labels, Bonds, Berlei and Holeproof, fell almost 5 per cent, Mr Errington said.
He criticised the company's ''sudden'' exit from domestic manufacturing, saying it relied totally on overseas sourcing without having the necessary arrangements in place.
Pacific Brands chief executive Sue Morphet warned in February of hits to come due to rising cotton prices and increased labour and utility costs in China.
''We're in excellent shape for the longer term, but the near-term outlook is challenging due to soft trading conditions, import price increases and the performance of footwear, outerwear and sport,'' she said.
The company announced a half-year loss of $166 million in February. Since then its share price as fallen 42 per cent. Yesterday the shares fell 3¢, or 4.5 per cent, to 63.5¢.
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