Dick Smith shares are being destroyed

Dick Smith has been smashed on the market today.

The company posted increased sales and profit, and an underlying result within expectations.

But same-store sales – an indicator of growth when you take out the impact of investment in new locations – were weaker than expected and net profit was down 10%.

The stock fell almost 14% on the ASX, trading at an all-time low of $1.72 a short time ago.

Ric Spooner, chief market analyst, at CMC Markets said:

“The market was disappointed by like-for-like sales growth which did not seem to benefit from the depreciation allowances (announced in the May federal budget) to the same extent JB Hi-Fi did.”

There was a 7.5% lift in sales to $1.319 billion. Profit for Dick Smith’s second year as a listed company was up 3.1% to $43.4 million.

Net profit fell 10% to $37.9 million, when accounting for $5.5 million in costs to cut jobs.

However, analysts described the underlying profit lift of 3.1% as anaemic for a business which is supposed to be in a turnaround.

The result brings into question the company’s business revival strategy, CMC Markets said.

While overall sales increased 7.5%, most of this was due to the expanded store network. Comparable sales were up just 1%. Comparable sales in Australia were up 2.4%.

And the New Zealand business suffered with sales falling 6.9%, following a deterioration in consumer sentiment.

Growth isn’t over yet

Over the last 30 months, Dick Smith has opened 70 stores and plans to open 15 to 20 new stores next year.

Cash flow from operating activities took a hit, dropping to negative $3.9 million from a positive $79.6 million in 2014.

The company says this was mainly due to holding more stock to benefit from better trading terms and favourable exchange rates.

A short time ago, its shares were down more than 14% to $1.71.

The company was marked down despite a good profit outlook for the current year. Dick Smith says a profit of between $45 million and $48 million is likely in 2016.

CEO Nick Abboud says the introduction of small appliances in 100 Dick Smith stores and cost cutting will deliver further benefits.

“We are pleased with the Australian sales performance, which was achieved in the face of an
increasingly competitive environment that saw more promotional activity than the prior year,” he says.

“This reaffirms that the Dick Smith’s growth strategy is working and reinforces our ongoing commitment to providing value and convenience to our customers.”

Detail on the results:

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