Thorn Group expects to increase full year profit by more than 20 per cent to $28 million as lower income households rent fridges and washing machines for longer.
The company, which owns brands such as Radio Rentals and Rentlo, expects a substantial increase in earnings for the full year ending March 31, 2012, subject to current economic conditions remaining stable.
“I don’t know that there are too many households that can get away without a washing machine, refrigerator etc,” Thorn managing director John Hughes said on Tuesday.
“As more and more consumers find their economic situation difficult or uncertain, then there is a part of the community that will say they would prefer to rent.”
Analysts predict the company will post a net profit of $28 million for the full year, up 26 per cent from $22 million in the previous year.
The company posted a 13 per cent increase in full year profit in fiscal 2011.
Mr Hughes said the board was “not uncomfortable” with analysts’ forecasts.
On Tuesday, Thorn said net profit rose 29.5 per cent to $14.3 million in the six months ended September 30, up from $11 million a year earlier.
Mr Hughes said the increase in profit was due to the company’s ability to perform under challenging market conditions while long-term recurring revenue streams, such as essential household goods rentals, remained strong.
Growth in the core Radio Rentals/Rentlo business was again a key driver in Thorn’s performance.
Customers who were constrained by cash and credit availability were staying longer on rental agreements while some categories experienced a 70 per cent take-up in purchasing rented items.
Shares in Thorn Group Limited rose seven cents, or 4.3 per cent, to $1.70 by 1205 AEDT on Tuesday.
Thorn said it had benefited from positive contributions from all of its growth initiatives which provide a “sound base for future expansion”.
Record levels of installation volumes were achieved at the start of the year, with furniture being the standout performer.
Flat panel televisions and whitegoods also recorded solid growth.
The increase in earnings in the second half would be due to solid organic earnings growth from existing businesses and a full year contribution from its new acquisition NCML.
Thorn opened five branches, staffed by one person each, in fiscal 2011 targeted at underserviced regional markets.
Mr Hughes said further expansion opportunities were being explored with another five outlets planned for opening in the second half.
