In late October Dick Smith announced that NPAT (net profit after tax) expectations for the coming year could be reduced from $5 million to $8 million.
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Managing director, Nick Abboud didn’t have much to say about the crucial Christmas period. “Further impairment maybe required depending on Christmas trading”.
The trading update has spooked investors, pushing Dick Smith shares down 46 cents, or 69.7 per cent, to 20 cents at the start of trade.
Dick Smith also plans to expand its store footprint to compete against JB Hi Fi and Harvey Norman by opening 15 new stores each year in the near term.
In a report, Deutsche Bank analysts Michael Simotas and Daniel Wan said the company was expected to move quickly to clear unwanted inventory, which was likely to result in heavy discounting in the wider electronics sector over Christmas.
“We fear the group will be forced to discount branded hardware in an effort to attract shoppers to its stores, which could force JB Hi-Fi to follow suit”, the analysts said.
“We said at the AGM we wanted to generate sales and cash and this is part of being able to do that”, he said. Stocks prices crashed after Woolworths [ASX:WOW] closed 100 Dick Smith stores before selling the chain to Anchorage Capital Partners.
Anchorage slashed the value of Dick Smith’s inventories and launched a massive clearance sale, using the funds to pay the balance of what it owed Woolworths.
Poor product mix, increased discounting and disappointing sales of tablets, gaming and accessories were blamed for eroding the company’s margins.
Dick Smith bought its goods in local currency, meaning that price rises next year due to Australia and New Zealand’s softer exchange rates were not a given.
It cut the value of its inventories by at least A$60 million (NZ$65.9m) after a 4 to 5 per cent slump in same stores sales in October.
Dick Smith’s director of buying and marketing Rod Orrock – who joined the retailer in June 2014 after a long career with Harvey Norman – quit in September for health reasons and has been replaced by director of retail operations Mark Scott.
Shares in Dick Smith shares have fallen more than 85 per cent since the start of the year.
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Dick Smith insiders have said the company is now preparing to kick off a 70% off everything campaign.
