Powerhouse weighs down Pacific Retail Group

Pacific Retail Group's money-gobbling UK appliance chain Powerhouse will break even in two years - but it still weighs heavily on the group.

Half-year profits soared from $341,000 to $55.6 million, thanks to a $92 million one-off gain from its August sale of the Noel Leeming and Bond & Bond appliance and furniture chains.

Stripping out these gains, the Eric Watson majority-owned company plunged $30.5 million into the red, mainly because of a $39.2 million trading loss from the 128-store UK appliance chain it bought out of receivership for $47 million last year.

And Powerhouse was not the only bad news.

The 11 Living & Giving gift and homeware stores posted a $2.3 million loss, compared with a $1.8 million loss last year. Pacific Retail is now mulling over their disposal in the new year.

It said the Powerhouse loss was in line with the company's September forecast and warned the UK remained competitive.

"The environment in the UK has resulted in a tightening of retail sales.

"Christmas trading is obviously important to the second-half result and the break-even profit target. Powerhouse is forecast to achieve a further improvement in trading in the 2006 year and a full-year break-even in the 2007 year."

Although turning Powerhouse around had been a "difficult and frustrating process", good progress had been made. Notable achievements included the appointment of a senior management team and solving basic retail and operational issues.

Pacific Retail chairman Maurice Kidd said the Living & Giving stores had not been trading profitably for the past few years.

It had closed four stores at a cost of $1 million as it tried to solve the problems.

Living & Giving was in a much better position for the important Christmas period, when it generated about 40 per cent of its sales.

Acting chief executive Steve Smith said the company would review its ownership of the Living & Giving stores after Christmas. "We'll look at how we get through Christmas and make the calls."

So far, Christmas trading for the chain was pleasing.

Sales for the group's New Zealand businesses rose to $16.3 million, from $9.2 million last year, an increase of 77 per cent.

The local appliance and furniture chains contributed trading profits of $5.7 million in the period. Kidd said the company was still assessing whether to distribute proceeds from the $138.5 million sale to shareholders.

As reported last week, the Finance Group - comprising Pacific Retail Services, Pacific Retail Finance and Montreal Financial Services - earned a net profit before tax of $14.6 million for the half-year, up 160 per cent on last year.

Meanwhile, Bendon had signed a global licensing agreement with Elle Macpherson, enabling it to take the brand into North America and the Gulf States early next year. Bendon's sales for the half-year were $48.4 million.

Pacific Retail's shares closed down 8c to $2.22.