Retailer Dick Smith has cut profit guidance and the stock is getting destroyed.
The electronic store says 2016 net profit is now anticipated to be $5 million to $8 million lower than previous guidance of $45 million to $48 million.
The stock was down as much as 28%.
October sales have been disappointing and the company has a cautious outlook for the important Christmas period.
CEO Nick Abboud told the company’s annual general meeting that sales grew 6.9% in the first quarter. However, like for like sales were up just 1.3%.
Retail store sales were soft but this was offset by strong growth in online.
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, as this chart shows:
While top line sales improve the more stores you add, 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 guidance means the 2016 financial year profits are in danger of coming in below the previous year.
The retailer has been cutting costs, trying to bring down expenses as sales increase.