Leather demand remains depressed globally and Ethiopia unrest has impacted business
Companies: Pittards plc
Luxury leather goods producer Pittards (AIM: PTD) has released a profits warning this morning confirming recent social unrest in Ethiopia and continued depressed demand globally will likely impact results.
"...overall performance for the full year ending 31 December 2016 is likely to be lower than our expectations at the time of the half year results"
The lowered expectations are, according to Management, driven by a combination of "prolonged depressed demand for leather" and the disruption to its supply chain in Ethiopia.
Pittards had previously updated the market regarding the social unrest in Ethiopia back on the 10th October. At that time it did not think there would be any impact to its operations:
"At this time we do not envisage significant disruption to our production however we continue to monitor the situation closely"
Fast forward to today and there has been an impact on production levels:
"some production was lost and levels have not yet returned to the levels pre-disruption"
The other more worrying factor driving today's profit warning is the longer-term slump in demand for leather, which has led to "disappointing sales volumes in the last few months of the year". Looking through Pittards' Interim Results back in September the emerging markets are tough for leather producers currently:
"Volumes in the leather industry remain depressed reflecting reduced demand from China and Russia and high inventories following mild winters which all have a direct impact on our markets."
Considering we have had a warmer than average year in 2016, it is understandable that demand has remained muted.
There aren't sensible consensus forecasts available, but Pittards achieved an EPS of 1.56p for H1 2016. Assuming an FY16 EPS of 3p would put the shares on a PE multiple of 25x. Considering this is an H2 profit warning a 3p EPS estimate may well be optimistic which would obviously put the multiple even higher.
Shares are off 15% this morning and have a market cap of £10.6m.