Retailer Verimark Holdings (VMK) cautioned on Friday that it is anticipating said on a loss before taxation of between R4.5 million and R5.5 million for the six months ended 31 August 2012 compared to the profit before taxation of R13.1 million reported on in the previous corresponding period.
Headline earnings per share and earnings per share for the six months ended 31 August 2012 is expected to be in the range of (5.0) and (6.2) cents per share compared to the headline earnings per share and earnings per share of 7.0 cents per share and 7.1 cents per share respectively‚ as reported on in the previous corresponding period.
The group said the loss was attributable‚ mainly due to the following factors:
* Given the tougher trading environment‚ certain retail customers have reduced their stockholding of products in their stores‚ which resulted in lower sales into those retail customers. It is important to highlight that sales out of those retailers reflect positive growth for the period March to July 2012. This reduction in stock levels is not expected to be repeated in the second six months.
* Rand exchange devaluation‚ whilst partly offset by the purchasing of forward cover‚ has had a material negative impact on margins in the first six months. Selling prices were increased on certain products in June / July 2012 to offset the impact of the rand devaluation.
While margins are expected to recover in the medium term‚ initial resistance to the increased prices is to be expected.
Full impact of the corrected margins should bear fruit in second half of the year
* Out of stock on two key products. Verimark rejected an inbound shipment from a specific supplier due to the product being out of specification. This resulted in rework of the product by the supplier‚ which caused a two month out of stock situation. In the
second instance‚ Verimark had taken a decision to replace an existing product with a substantially more improved version.
Unfortunately‚ the introduction of the new product was delayed and resulted in an out of stock situation.
* As mentioned in previous communications‚ the business efficiencies were negatively impacted due to the sales and operations that have outgrown the infrastructure. Whilst concerted efforts have been made to improve the operational efficiencies and contain costs‚ the benefits of this focus will only be realised after the relocation to the newly custom built‚ double the size warehouse & head office.
On the issue of funding‚ Verimark said that while the anticipated loss for the six months ended 31 August 2012 has resulted in additional cash utilisation‚ the group remains favourably geared and adequately funded to continue on the Verimark group’s growth path.
Looking ahead‚ the Board remains confident that the medium and long term prospects of the group remain positive. This view is based on the business’ 35-year successful history‚ market leadership of the company‚ the improved product supply and the improved margin outlook.
“Furthermore‚ operational and process efficiencies should start to bear fruit in the second six months‚ when the relocation to the new warehouse and head office is completed‚” Verimark added. - I-Net Bridge