Pacific Brands is casting off workwear brands like KingGee and Hard Yakka and pinning its recovery hopes on the iconic Bonds and Sheridan labels after slumping to a $224 million loss.
The struggling clothing maker will sell its workwear division to Coles and Target owner, Wesfarmers, for $180 million, leaving it to focus more heavily on underwear business Bonds and sheet maker Sheridan.
It has also promoted its finance chief David Bortolussi to oversee the recovery effort, replacing former chief executive John Pollaers who left the company in July amid a boardroom battle over the company's direction.
But shareholders shouldn't bet on a turnaround any time soon as tough competition continues to put pressure on the company's profit margins.
Mr Bortolussi says the company expects to lift sales during the first half of 2014/15, but weaker profit margins and a lower Australian dollar would push earnings down again.
"The company expects a continuation of challenging and variable market conditions," he said on Tuesday.
Pacific lifted sales revenue 3.8 per cent to $1.32 billion during 2013/14, but earnings dropped by more than a quarter due chiefly to the lower profit margins.
The full year result was also weighed down by a $241.8 million goodwill writedown to the workwear division and $46.6 million in restructuring costs.
CMC Markets chief market analyst Ric Spooner said removing the workwear division was a step in the right direction.
It would allow Pacific Brands to reduce its $249 million debt pile, and devote more attention to its flagship brands.
"I think it's a company that needs to consolidate and clean up, so the chances are this is a positive move," he said.
But IG Market strategist Evan Lucas said the sale of workwear might make it harder for Pacific Brands to increase revenue and earnings.
"Now that they have got rid of workwear the question is where do you look for growth, does it look in underwear? That's obviously really, really hurting."
Pacific scrapped its final dividend in order to reduce some of its debt, which Mr Bortolussi said would be a key focus for the company in 2015.
Pacific Brand shares added one cent to 58 cents.
COMPETITION, WRITEDOWNS DRAG PACIFIC BRANDS TO A LOSS
* Sales revenue of $1.322b, up 3.8pct from $1.27b in 2012.13
* Net loss of $224.5m, down from $73.8m profit
* No final dividend, down from 2.5 cents per share
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