Cavalier Corp says the factory closures and job cuts of recent years are paying off with first-half profit set to rise by as much as 82 percent, even as the company faces softer market conditions in both Australia and New Zealand.
The carpet maker says normalised profit is expected to between $1.6 million and $2 million in the six months ending this month, up from $1.1 million a year earlier.
That's driven in part by the new structure, where manufacturing has been consolidated to run more efficiently, it said.
However, revenue is expected to be 7 percent down to reflect the impact of softer market conditions on sales, particularly of lower-margin synthetic carpets.
“Pleasingly, however, sales of higher-margin wool carpets have grown year-on-year as Cavalier increases its focus on the high end of the market,” said chief executive Paul Alston.
Cavalier will still report a bottom line net loss between $9.8 million and $10.2 million, including the previously announced $11.8 million loss on the sale of its 27.5 percent stake in Cavalier Wool Holdings at the end of September.
Alston said the carpet business has benefited from lower wool prices, caused by decreased Chinese demand for coarser carpet wool.
“Conversely, however, and while a much smaller part of Cavalier’s business, this is impacting on sales and margins for Cavalier’s wool-buying business, Elco Direct,” he said.
“Cavalier is continuing to invest in essential manufacturing capital and expanding its direct and indirect marketing investment,” he said.
“Efficiency improvements in manufacturing are being targeted with further gains still to be realised and consistent margins should continue into the second half of 2019.”
Cavalier has a renewed focus on high quality, high margin, woollen flooring products, a more efficient manufacturing base and a strong financial platform, Alston said.
“While market conditions on both sides of the Tasman are challenging, with reduced consumer confidence, we are well placed with our lower cost base to take advantage of a market lift,” he said.
“We will continue to invest in our core business operations, particularly into a new IT system, customer relationships, an expanding global presence, innovative new product development and multi-media marketing, as well as exploring investment opportunities to grow our market presence.”
Cavalier reported a $4.1 million net profit for the year ended June, a turnaround from the previous year’s $2.1 million net loss.
Cavalier shares started trading at 61 cents, 2 cents down from yesterday, but the whole market is weaker with the NZX 50 Index down 1.4 percent. Still, the shares are up 50 percent from a year ago.