Yuletide blues hit Watson's UK bet

Eric Watson's PowerHouse retail chain drops 350 staff.

Eric Watson's big bet in Britain - the PowerHouse retail chain - is shedding 350 staff as it once more fails to meet a target for breaking even.

PowerHouse yesterday forecast a $13.2 million operating loss for the six months to March 31 after disappointing revenue in the crucial two weeks leading up to Christmas. Its aim was to break even for the six months.

PowerHouse is part of Pacific Retail Group (PRG), the New Zealand-listed company 81.4 per cent owned by London-based entrepreneur Watson and 11 per cent by institutional investor AXA.

PRG highlighted a 13 per cent growth in sales by PowerHouse in the three months to January 1, despite a cut in store numbers from 134 to 123 and the worst Christmas for British retailers in a decade.

It said like-for-like store sales were up 28.5 per cent.

PowerHouse chief executive Peter Halkett said the company remained confident "because the trend line is up - just not as steeply as we would like".

At Alliance Capital, the manager of AXA's investment, Andrew Bascand, echoed Halkett's view - "heading in the right direction" - and said: "We are still confident that they can make PowerHouse a success story."

PRG acting chief executive Steve Smith said: "Yes, it's disappointing - we would like to achieve all of those targets, but it's not the nature of a turnaround. It doesn't go as smoothly as that."

Smith said the company remained on track to hit a full-year break even in the 2006/2007 financial year.

Halkett said PowerHouse was shedding 350 staff in a restructuring expected to be largely completed by the end of March as it cut "non-sales" roles in stores.

Some staff would be redeployed and some added in new roles, leaving the company with about 1700.

The move had been planned for months and timed for after the busy Christmas period.

PRG shares closed up 3c at $2.15 in typically tiny trading - just $7433 worth of shares changed hands.

PRG swooped to buy PowerHouse from its receivers in September 2003 for $47 million and parachuted in a New Zealander, former PRG chief executive Halkett, to revive the business.

The first missed target for the business was failing to break even after a year.

PowerHouse lost $50.3 million in the seven months to the end of March 2004 and another $39.2 million in the six months to the end of September.

Halkett said PowerHouse's pre-Christmas revenue was hit by a trend for shoppers to defer big-ticket purchases until the January sales.

The business missed out on strong sales of products, such as iPods, mobile phones, digital cameras and laptops, because it did not stock them.

In a statement to the stock exchange, PRG said the tougher conditions - putting pressure on both sales and margins - were "expected to continue in the short-term".

Halkett said: "We had a tough December. But overall Powerhouse is consistently achieving double digit sales growth in a market that is generally flat, so we are confident of our direction."

PRG sold Noel Leeming, Bond & Bond, Big Byte and Noel Leeming Furniture for $138.5 million in August and is planning to float its finance business on the stock exchange.