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Postie Plus Group hopes the sale of manchester chain Arbuckles will stem the tide of losses.
Shareholders yesterday approved the sale of the Arbuckles assets to Kathmandu founder and Postie Plus shareholder Jan Cameron for approximately $4 million - a move chairman Peter van Rij said will allow the group to focus on its core activities.
The deal sees 13 Arbuckles stores transfer to Cameron, while the group retains the other 13 for conversion into new selling space. Leases on a further three stores will not be renewed.
Cameron also has six homeware stores trading under the Nood brand, a 6.3 per cent stake in Pumpkin Patch, and 15.1 per cent of Postie Plus Group.
Van Rij told shareholders at the company's special meeting in Christchurch yesterday that market conditions in manchester and homeware retailing had become "highly competitive" since Arbuckles was acquired in September 2003 following the group's IPO. Float proceeds had allowed the group to buy the then 20-store chain for $9.5 million.
Manchester products have been aggressively discounted by most, if not all, retailers as loss leaders for the past three to four years, said van Rij.
"This segment has become tougher with large competitors increasing their presence."
The group addressed this by increasing market share and expanding Arbuckles' retailing footprint from 20 to 30 stores. A new look offering had gained traction, but could not compensate for aggressive discounting, he said.
The transaction means the group incurs a significant but non-recurring, non-trading loss of between $2.4 million and $2.6 million, comprising of write-downs on goodwill and stock. This will be included in the results for the year ending July 31.
But van Rij said the stock reduction strengthens the group's financial position. A year ago total stock levels for the group were an "excessive" $38 million. This has been reduced to around $28 million, and the sale of Arbuckles stock as part of the deal will see the total reduce further to around $24 million, leading to less interest and warehousing costs.
He said the exit from Arbuckles will also result in a positive net profit after tax contribution of more than $1 million a year.
The divestment also enables the group to increase the footprint for its Postie+, Baby City and Schooltex brands, said van Rij.
Postie Plus has been hit hard by the country's retailing malaise.
Third quarter sales were down 7.5 per cent, and the group has indicated that it was unlikely to improve significantly on a first half loss of $2.9 million.
It expects to be able to provide an earnings guidance on its 2008 financial year result later this week.
Postie Plus shares closed down 1c at 39c.