Shares in struggling electronics retailer Dick Smith (DSH) crashed yesterday for the second time in as many months after yet another earnings downgrade.
The shares fell almost 70% to an all time low of 20 cents, before struggling higher to end at 28 cents, off a still massive 57%.
The fall happened from the start after the company warned in a statement to the ASX that earnings would be lower and that it was slashing the value of unsold stock by at least $60 million.
The bad news is in contrast to the upbeat sales updates issued by Harvey Norman (a rival to Dick Smith), Coles, Officeworks, Kmart, Bunnings, Kathmandu, OrotonGroup and several smaller groups.
DSH 2Y – More problems at Dick Smith
The statement was issued after Dick Smith launched an inventory review after a 4% to 5% slump in same-store sales in October prompted managing director Nick Abboud to step up discounting and marketing and warn that profits could fall by 156% or more as gross margins came under pressure.
Mr Abboud said in yesterday’s statement that November trading was also below expectations, stock holdings remained too high and the company was “unable to re-affirm the profit guidance previously provided”.
In October, Mr Abboud forecast a 2016 net profit between $37 million and $43 million, compared with earlier guidance between $45 million and $48 million and last year’s net profit of $43.4 million.
Now the company will incur a first half loss (and claim the write down is a one-off item), and there could be further bad news to come.
Mr Abboud said the inventory review was still underway, but Dick Smith’s board had decided to book a non-cash impairment charge of $60 million before tax and further impairment may be required, depending on Christmas trading.
"We remain cautious on the outlook for the Christmas trading period. We will continue to drive sales, maintaining flexibility on gross margin to reduce inventory and improve our net debt position."
In 2012, private equity firm Anchorage bought Dick Smith from Woolworths for $94 million.
A year later, the company floated on the stock market at $2.20 a share, giving it a market value $525 million, a gain of nearly 500% At yesterday’s close it was worth just $74 million.
A small ‘win’ for the struggling Woolworths, then.
