Dick Smith shares smashed, down by half

Source: Dick Smith/Facebook

Dick Smith shares were dumped today after the electronics retailer reported poor sales and put doubt on whether current year profit will reach the level of the previous 12 months.

At the close, the electronic retailer had lost 57.5% to be trading at 28 cents after telling the market it can’t re-affirm its profit guidance.

Its current market worth, around $75 million, is less than the $94 million private equity firm Anchorage paid Woolworths for Dick Smith.

That sale was described as the greatest private equity heist of all time when Anchorage floated Dick Smith for $520 million a year later in 2013.

Last month the company cut its guidance for net profit by $5 million to $8 million lower to $45 million to $48 million.

Today, it told the market its October sales were disappointing and November trading was below expectations.

“We remain cautious on the outlook for the Christmas trading period,” says CEO Nick Abboud.

“We will continue to drive sales, maintaining flexibility on gross margin to reduce inventory and improve our net debt position.”

The company announced a non-cash impairment of $60 million after an inventory.

“Given the non-cash write-down and the uncertain trading outlook, the company is unable to re-affirm the profit guidance previously provided,” the company said.

The darker outlook for Dick Smith is in stark contrast to retailer Harvey Norman which reported total sales of $1.50 billion for the September quarter, a rise of 6.1%. And on a like for like basis, sales looked even better, a 7.% rise.

While Dick Smith has been introducing small appliances to its stores, it doesn’t have the exposure to the booming home market that Harvey Norman has with its furnishings and other home wares.

Dick Smith has been rapidly adding stores over the last two years, pushing top line sales revenue higher.

While top line sales improve the more stores added, profit eases because of the added startup costs of opening a store. This means there’s a lag before profit catches up to that rapid rise in sales.

Annual sales for the year to June were up 7.5% to $1.319 billion but profit for Dick Smith’s second year as a listed company was only up 3.1% to $43.4 million.

However, the latest indications from the company means the 2016 financial year profits are in danger of coming in below the previous year.

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