Staff important for future growth, Briscoe says

BRISCOE remains focused on developing and supporting its staff and is aware of the importance staff members played in the future growth of the business, an analyst says.

Briscoe recently announced a reported profit of $61.3 million for the year ended December, in line with guidance provided in February.

Morningstar analyst Johannes Faul maintained his sales estimate for the coming decade at a compound annual growth rate (Cagr) of 4%.

Compared with the group’s sales Cagr of close to 6% over the past five years, 4% represented a slowdown but it was close to the recent 3.5% sales growth achieved in the 2018 financial year.

Morningstar increased its fair value estimate by 4% to $3.65 per share, primarily due to adjusting for the time value of money.

Competition affected fullyear gross profit margins, which fell by about 60 basis points but it was more than offset by tight cost control.

Earnings before interest and tax (ebit) margins remained stable about 14% as benefits from efficiency and greater scale were passed on to consumers by cutting prices and offering better instore service, Mr Faul said.

‘‘We expect online sales to continue growing at a greater rate than instore sales, further weighing on ebit margins as these sales generally incur higher variable costs.’’

Briscoe Group was one of New Zealand’s premier retailing groups, operating the Briscoes Homeware and Rebel Sport stores, he said.

The group had a broad domestic presence throughout New Zealand and its stores were found in most major cities, he said.

Scalerelated efficiencies were assumed, given its broad presence, especially in relation to inventory and logistical costs.

Although Briscoe Group had a great brand awareness and benefited from its large scale, it did not have an advantage, given the competitive threats facing the company,

Promoting merchandise through discounting crimped margins as consumers deferred purchases until they were on sale, Mr Faul said.

Sport and homeware retailing was also a highly competitive market.

Price competition was a major factor in determining sales.

‘‘Unfortunately, price competition also contributes to margin pressure.’’

Inventory management was another factor prompting caution, he said.

As with all retailers, appropriate inventory levels were crucial in the daytoday functioning of the business.

Briscoe had addressed this with its software system but it needed to remain vigilant.

Although the newstore growth looked limited, the company had indicated it would continue to extend its geographic reach throughout New Zealand if the potential for value existed.

Additionally, acquisition growth had not been ruled out and the group remained open to the idea, Mr Faul said.

The group had previously tried to take over Kathmandu and retained a 19.8% shareholding.

Lastly, gaining market share from competitors was a high priority.

Competing through promotions, price and product would be Briscoe’s tools of choice.

The group’s stock would suit a patient investor with a medium to high appetite for risk who was interested in exposure to the New Zealand retail market, he said.

The outlook appeared ‘‘reasonably buoyant’’ for retailers, given the improvement in the economy.

While competition from the likes of The Warehouse Group might constrain further market share gains, Briscoe’s ability to improvise was likely to stand it in good stead, irrespective of market conditions, Mr Faul said.

‘‘We believe the company will achieve midsingledigit growth in the medium term.’’