Good news from Dick Smith (DSH) in its first profit report back on the ASX as a listed company, but it was a different message from The Reject Shop (TRS), which was to be expected after its profit warning last month saw the shares plunge more than 30% in a day.
Consumer electronics retailer Dick Smith beat its earnings forecast in the prospectus for its $520 million float last year, in the six months to the end of December.
Dick Smith yesterday revealed an underlying half-year net profit of $25 million while pro forma earnings before interest, tax, depreciation and amortisation (EBITDA) were $41.7 million, just topping prospectus forecasts of first half earnings of $40.2 million.
Sales for the period were at $637 million.
Earnings before interest and tax (EBIT) were $36.2 million compared with an EBIT of only $19.5 million recorded by its former owner Woolworths just before it sold the electronics group to private equity group Anchorage Capital Partners in 2012 for just $94 million.
After booking the one-off costs of the sharemarket float, Dick Smith’s bottom line result for the December half was a net loss of $4.4 million.
But as impressive as this all seems, the company couldn’t escape the weak retail conditions.
It said yesterday it saw a 1.3% fall in comparable store sales in the first half reflecting the intense discounting experienced in the consumer electronics market in the first half of 2013. (That makes the solid result from JB HI Fi at the start of the month look much better with higher topline and comparable sales and a higher than expected profit).
That news seemed to spook investors who sold off the shares and they closed down 8.8% at $1.95.
Dick Smith said it was sticking to its prospectus forecast that it would be able to pay its maiden dividend in October this year.
That would reflect a 60%-70% payout ratio of the profit for the seven month period from the completion of the IPO (December 2013) to June 29, 2014.
Dick Smith has 369 stores and has immediate plans to open a further seven Dick Smith stores, three of its high-end fashion technology Move stores and one David Jones electronics outlet.
These openings are due to occur in the current second half of the financial year.
Chief executive Nick Abboud said in a statement that the better-than-expected result came from a strong focus on sales, gross margin and reducing the cost of doing business.
”Dick Smith’s range of private label and global brands enabled us to achieve our sales expectations without compromising our gross margin,” he said.
There was a 20 basis point improvement in gross margins to 25.3%, which also beat prospectus forecasts.
David Jones for one will be hoping that these solid initial signs from Dick Smith will be repeated in the outsourced electronics outlets the latter will operate for the department store chain.
