Dick Smith’s share price is now so low that it is worth less than when private equity group Anchorage paid just $94 million to Woolworths for the electronic retailer in 2012.
That sale was described as “the greatest private equity heist of all time” when Anchorage floated Dick Smith a year later for $520 million.
However, its current market worth is around $75 million after the share price more than halved today to 28 cents.
The trouble is that the retailer hasn’t got the right mix of goods and the revenue from rapid store expansion hasn’t — yet — caught up with the costs from adding new shopfronts.
The company has now twice indicated its profit guidance won’t work. Last month, it cut the outlook for net profit by $5-8 million to $45-48 million. And today it couldn’t reaffirm that outlook following disappointing sales in October and November.
Delivering the right blend of like-for-like sales growth and profit margin is always a balancing act, according to CLSA analysts David Thomas and Richard Barwick.
“Pulling too hard on one lever tends to hurt the other,” they say in a note to clients. “Dick Smith’s management is struggling to get the combination right.”
Dick Smith has changed its product mix from the days when the store was populated by tech insiders wanting parts for their latest electronics creation.
Today it competes more directly with JB Hi-Fi and Harvey Norman on televisions screens, laptop computers and phone accessories, billing itself as the fastest growing consumer electronics retailer with the largest number of stores. Rather than offering cheaper options via Dick Smith-branded electronics, the focus has shifted to prominent brands, including Apple, Canon, GoPro, Sony and even Dyson vacuum cleaners.
Since the 2013 IPO, Dick Smith has opened 70 stores to reach 393 in Australia and New Zealand. It aims to have 420 to 430 stores by 2017, by adding 15-20 new stores annually.
Rather than concentrate on one demographic the company is trying to shift its target market from older men to men, women, young and old, as this chart from a Dick Smith investor presentation shows:
The idea is to make itself more attractive to customers who wouldn’t have come near Dick Smith in the past.
This has meant adding fitness and small appliances to the product mix and opening a new type of store, Move.
Overall, the big sellers are still computers, phones and accessories, however the company sees growth in fitness and TVs.
“Dick Smith is far from being the best brand in what remains a competitive sector,” says CLSA.
And a combination of promotional pricing, product mix and channel mix has hurt its margins.
In October, sales growth slowed significantly with like-for-like down about 5%, despite more promotional activity.
“Management admitted tactical missteps had contributed,” CLSA says.
“We acknowledge Dick Smith is far from the best brand, and it is operating in a competitive sector. However, conveniently located stores, selling small tech products and accessories, should mean ongoing relevance to consumers.”
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