What the latest Padini results (3Q15) says?

While Padini halted its continuous drop in earnings, registering RM26.6 million net profit for 3Q15 against RM21.1 million from its previous corresponding period, I do not take that as a major note. It is good to see that dividend is maintained and profitability are consistent though. But there are some new findings to note.

We know that Padini has more individual outlets and is less reliance on consignment sales. Collection  hence is not a problem. The sales are mainly cash sales. By having its own outlets and franchisees outlets, it is able to control where and how it does its sales promotions. The challenge here for Padini is to bring traffic or customers that buy. From its growth in sales through its performance review, that seems to be not much of a problem. Over the last few years, the profit margin it seems is the problem due to higher costs and price competition.

Does it need to throw huge discounts to attract customers, that's the question and more importantly, can it continue to sell with so much impending competition?

However - Immediate challenge for Padini is reducing its stocks as highlighted in its review for 2Q15 (previous quarter for ending 31 December 2014).

Performance review for 2Q2015 (ending 31 Dec 2014)

As mentioned above, reducing its stocks has been a priority due to the impending GST starting 1 April 2015. This is due to from the old stocks, it cannot claim input tax (as there was no input tax paid which can be claimed) - I presume. Only for purchases from 1 April 2015 onward would it be able to claim back input tax from its sales. This to me is a test, which means that the company has to make do with older stocks i.e. in clearing those while increasing sales and not suffering loss of margins. That was the task for the last few months prior to GST.

And I would say, it manages to show that it is able to do that. Just look at the drop in inventory and how it manages to increase its cash balances (highlighted below in red).

GST is a situation where it needs to test out its ability to execute and it delivers as I see it. Long story short, it is able to execute what it wanted to do - reduce stocks, increase sales and maintain margins while the purchases will come later.