Profit Downgrades

One of the country's biggest property developers, Mirvac, is expecting the pain in Australia's housing market to extend well into next financial year and is tipped to this week unveil a hefty profit downgrade for 2005-06.

A Mirvac board meeting today is expected to discuss the tough times ahead, and later managing director Greg Paramor is expected to announce a 13 per cent profit downgrade to about $240 million for 2005-06, rising to about $280 million the following year.

Last month Mr Paramor cut earnings forecast for this financial year by 14 per cent, sparking a heavy sell-off in property-related stocks and securities, with investors slashing more than $400 million from Mirvac's market value.

Stockland, Australand, Multiplex and Investa were among the other major players in the residential sector hit at the same time.

In his May 3 statement, Mr Paramor warned that this year's profit would probably come in at about $231 million, well down from last year's $253 million.

"The profit decline for this financial year was due to a slowing of the housing market, an unexpected increase in development costs and construction delays, as well as changes to accounting standards," he said.

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Clothing wholesaler and retailer OrotonGroup Limited (ORL) saw its share price drop approaching 25% in the first hour of trading today after the group dropped its full year earnings guidance and announced that it would not continue with its discussions on a potential privatisation of the group.

The group lowered its earnings before interest, tax and amortisation (EBITA) guidance, to between $8.5 and $9.5 million for the twelve months ending 31 July 2005, compared to a result of $14.5 million in the corresponding period last year.

The group said that the downgrade reflected the impact of what the group described as “relatively“difficult” trading conditions during the period, together with increased overhead costs and expenses associated with OrotonGroup’s restructuring program.

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markrmau said:

MRL has just made an appalling announcement. (As I said previously, DJS is far better managed - they saw weaker conditions coming and rationalised their holdings while the going was good).

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Brazin Limited (BRZ) shares dropped 13% this morning as the group advised that Earning Before Interest and Tax (EBIT) would be around $20.5 Million. This result follows some disappointing trading results for May and June 2005 (particularly post Mothers Day), mainly from the Footwear and Entertainment Divisions.

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June 24, 2005
FRESH signs of the consumer-spending drought emerged yesterday as Brazin joined the long list of retailers struggling in an environment marked by sales offering shoppers 70 per cent discounts to get them through the door.

Brazin chief executive Greg Milne yesterday described trading conditions as "tough" as he conceded that the entertainment and underwear retailer had fallen victim to the slump in discretionary spending.

Following the profit-warning path of other retail companies -- including Just Group, Colorado, Miller's Retail and Oroton Group -- Mr Milne said Brazin's 2004-05 earnings before interest, tax and amortisation would only be "slightly ahead" of last year's underlying result of $20.5 million.

The forecast was well short of the most optimistic analyst estimates of about $30 million. Brazin -- owner of Sanity, Ghetto and Bras 'n' Things -- could also take a hit in the next financial year as it adopts the new international financial reporting standards.

Brazin's warning unnerved investors, who sent most retail stocks sharply lower.

Shares in upmarket retailer David Jones slumped 10.5c, or about 4 per cent, to $1.83, and Harvey Norman fell 5c to $2.59. Shares in Coles Myer, which owns Myer, Kmart and Target, dipped 5c to $9.29. Brazin's shares tumbled 21c to $1.70.

Shaw Stockbroking's Scott Marshall said: "It wouldn't be unexpected to see a few more (profit downgrades) in that sector before the results come out.

"It's a sign of the times that consumers in general are being more cautious on the spending."

He described sales discounts as more aggressive than usual, partly due to some retailers being caught with an overhang of stock. UBS has cut its earnings estimates for Harvey Norman, due to concerns about consumer spending. Surfwear retailer Globe International is also seen as vulnerable.

A David Jones spokesman said the company's net profit after tax guidance for the 2004-05 year remained unchanged.

Brazin blamed its woes on a trading slump in May and June, mainly from its footwear and entertainment divisions, and slower sales from its partnership with Myer. Mr Milne said its underperforming footwear business Ghetto was the main reason for its weaker outlook. "There is no question, we misread the market," he said.

Brazin will be closing "significant" numbers of its 39 Ghetto stores and writing down millions of dollars in inventory.

Mr Milne said "we are very happy with our music business ... it continues to improves, as we work with Virgin".

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