Dollar Hedging Blocks Specialty Fashion

Sydney Morning Herald

Friday February 15, 2008

Vanda Carson

THE women's fashion retailer Specialty Fashion Group, which imports clothes from China, should be reaping the rewards from the dollar's rise in the past year but has failed to cash in.

The company is paying a higher rate for its stock because it has locked itself into a lower exchange rate with the US dollar than most of its rivals.

Its chief executive, Gary Perlstein, said yesterday that SFG was paying $1.33 for each US dollar. Late yesterday it could have bought US dollars for $1.11, had it not been for the currency hedge.

The two-year hedge was put in place in March last year - just as the Australian dollar started a climb that continued through most of the year and was interrupted only by the first phase of the US subprime crisis in August.

The company behind Katies and Miller's Fashion Club stores is locked into the deal until March next year.

Mr Perlstein was unable to quantify how much it had cost the company, but conservative estimates show it would be likely to mount into the tens of thousands in pre-tax earnings for clothing purchased for its 807 stores in a six-month period.

"We haven't been able to take advantage of the 90c dollar," Mr Perlstein said. "We are still hedged in at the 70[c]s. We took a very conservative, prudent approach, we said, 'We are not foreign exchange speculators' and then the dollar went berserk."

Rivals including Just Group and Pacific Brands, which both import at least 70 per cent of their goods from China, have been reaping the rewards of the buoyant Australian dollar, which peaked in November at 93.5c.

Just Group, the company behind the Portmans chain, hedged 90 per cent of its currency needs for the fiscal year at 82c, and half of its needs for the 2008-09 year at 85c.

Mr Perlstein said SFG was hedged for almost all US dollar payments because it wanted certainty amid its complex company restructuring, with sales of its Go-Lo and Crazy Clark's stores.

Mr Perlstein was speaking after posting a $19.5 million profit for the first half of 2007-08, up 5 per cent on the previous year. Like-for-like sales growth at the six women's fashion chains was less than 1 per cent, which is less than inflation.

He was cautious about future earnings amid fears a softening economy would deter women from buying new clothes. "We see slight signs of weakening but it is early days yet," he said.

Last year a late, mild winter hampered second-half profits and led to a profit downgrade.

SFG shares fell 1.5c to $1.59.

© 2008 Sydney Morning Herald

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