e-spaces

June 30, 2009

By Florence de Vries

Demand for AVI’s premium footwear brands fell as consumers reduced spending, but the consumer goods group expects to lift headline earnings a share by between 5 percent and 10 percent for the year to June.

AVI, which distributes the Prada and DKNY brands at its Spitz stores, said yesterday it expected its footwear brands to grow revenue by 6.4 percent to R629 million. On a like-for-like basis, however, revenue fell 9 percent year on year.

The owner of the Frisco coffee brand said revenue at its Entyce beverages unit rose 7.4 percent to R1.5 billion, while its Snackworx operation grew revenue 20.8 percent to R1.85bn. Its personal care brands grew sales 16.6 percent to R673m.

Werner Smit, a Thebe Securities equity analyst, said the earnings forecast was “good, but lower than expected”.

Sarah Jane Alexander, a retail analyst at Coronation Fund Managers, said the group was exposed to the weak consumer cycle through the Spitz footwear business, but the division’s revenue was in line with expectations. “These results show the consumer is still struggling, but AVI managed to hold operating margins, which is good.”

In the first half, headline earnings from continuing operations grew 12 percent.

Paul Bosman, a retail analyst at PSG Tanzanite, said AVI made a larger portion of its profit in its first half than in the second.

“If we adjust for this weighting, full-year headline earnings a share growth of between 5 percent and 10 percent implies no or negligible growth in the second half.”

Bosman added that the group’s market rating would be lower than its competitors given its exposure to the fashion and footwear sectors.

Last year, AVI invested more than R500m in marketing and trade support of its brands. Capital projects concluded in the previous year included investments in new capacity and technology to support its coffee and biscuit brands.

Although AVI noted slower growth in demand for its food and beverages brands, analysts said the defensive nature of the categories stood it in good stead.

“Food and beverages represent 70 percent of the group’s sales,” Smit said.

The group said that exciting innovations in its biscuit and snack portfolio would debut in the next financial year.

It was committed to selling its underperforming Argentinian hake and shrimp operation in the coming year, but Alexander said it would take some time to find a buyer, as it was a “difficult market”.

AVI fell 1.4 percent to R17.20 yesterday.