This week, Best & Less Group Holdings [ASX:BST] has been in the spotlight with wild news awash.
Shares were trading at $1.88 this afternoon — a 0.1% change despite the announcements made this week.
Shares are down by 6.56% over the past 12 months as consumer spending and icy sentiment have seen the company’s share price slide from its August 2022 peak of $2.85.
So, what was all the news this week?
Source: TradingView
Best & Less mess
On Tuesday, Best & Less announced softening trading conditions with total sales from 15 May–18 June down by 11.7% — $9 million below the prior corresponding period.
As a response, Best & Less began shedding inventory, saying in a statement:
‘In-season promotional and discount activity to clear winter stock has been accelerated, and yearly inventory is also being reduced to align BLG’s inventory position with current demand and maintain inventory quality.’
‘This activity has negatively impacted gross margin in Q4, which is expected to continue into Q1 FY24 as the winter season is closed out.’
With this statement came a substantial profit downgrade, showing that management was surprised by the extent of the drop in consumer demand.
This comes as BLG is currently in the middle of a $237 million takeover bid from BBRC — the private equity vehicle of billionaire entrepreneur Brett Blundy.
If this wasn’t enough to keep investors watching — the board announced today that the appointment of Erica Berchtold to Group Chief Executive Officer of BLG will not proceed.
Instead, executive chair Ray Itaoui will assume the role of CEO.
To confuse matters, Ray Itaoui is part of BBRC with Mr Blundy — making the buyout story hold some palace intrigue — as no reasons have been given for Ms Berchtold’s rejection from the CEO spot a mere three months before her planned start.
BBRC already holds a substantial holding in the company with approximately 72% voting power within BLG.
Brett Blundy and BBRC had lodged a request to acquire the rest of the company for $1.89 per share — an offer that went unconditional.
So why has news of plummeting demand and lowered forecasts been met with stable price action?
What this means for Best & Less moving forward
In a letter sent to shareholders this week by the chairman of an independent board committee (IBC) of Best & Less, shareholders were asked to assess whether they would be comfortable in the new environment, commenting:
‘In light of the deterioration in BLG’s trading performance, as well as the likely reduced trading liquidity of BLG shares given the Bidder’s (BBRC) increased Voting Power as a result of acceptances received.
‘(IBC) believes that the BLG share price may fall materially following the close of the Offer. Accordingly, the IBC recommends that those shareholders who have a shorter-term horizon for their investment in BLG or who have concerns about their future ability to exit their holdings should ACCEPT NOW.’
The deterioration mentioned was also outlined in the letter, with net profit after tax (NPAT) being downgraded to $3.6–4.2 million, which is considerably lower than the original guidance of $18–20 million this quarter.
With the latest UBS consumer spending survey showing most Australians are tightening their budgets, it’s unlikely that BLG will recover in the short to medium term.
Source: UBS
The other concern moving forward for Best & Less will be labour costs ballooning moving forward. Earlier this month, the Fair Work Commission decided that workers’ award rates will be lifted by 5.75%.
The minimum wage rate increase will see retailers like Best & Less feel the squeeze as foot traffic dwindles and costs rise.
So are there any retailers that are good picks in these tough times?
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Regards,
Charles Ormond,
For Money Morning
