Dick Smith’s shares dive

Dick Smith, Nick AboudElectrical retailer, Dick Smith, was unable to reaffirm its profit guidance today following disappointing sales performance in October and November.

The retailer is undertaking a review of its inventory levels conducted by external consultants and will take a non-cash impairment charge of $60 million.

Dick Smith announced to the market today November trading was below expectations and stock holding remains above management’s preferred levels.

A further impairment may be required, depending on Christmas trading.

“We remain cautious on the outlook for the Christmas trading period,” said Dick Smith MD and CEO, Nick Abboud. “We will continue to drive sales, maintaining flexibility on gross margin to reduce inventory and improve our net debt position.”

Significant marketing activity is underway to stimulate demand during the all-important Christmas period.

Given the uncertainty of the trading outlook, Dick Smith said it was unable to reaffirm the profit guidance it previously provided. A further update will be provided in February 2016 when half year results are released, or earlier if required.

In October Dick Smith slashed up to $8 million off its full year net profit guidance, saying it would fall to between $45 million and $48 million.

Shares in Dick Smith have more than halved in early trade on Monday. Nervous investors pushed Dick Smith shares down 46 cents, or 69.7 per cent, to 20 cents at the start of trade. The stock was 33.5 cents lower at 32.5 cents at 1021 AEDT.

Update (01/12, 11:00AM, AEST): Dick Smith has had nearly $90 million wiped off its market value after a sales downturn forced it to abandon its profit forecast. The news spooked investors, who pushed the stock down by 70 per cent in early trade. The shares closed 38 cents, or 57.6 per cent, weaker at a record low of 28 cents.

Commenting on the plunge in Dick Smith’s share price, Gayle Dickerson, a partner at Grant Thornton, said that although the Dick Smith announcement has come as a shock, the share price has been struggling over the past months, driven largely by aggressive discounting of Apple products across the sector to secure foot traffic.

“[Dick Smith’s] focus on securing foot traffic means strong Christmas performance will be key to avoid inventory issues, particularly during the typically quieter months in the New Year,” Dickerson said. “Given competitors, such as Harvey Norman, JB Hi-Fi and the department stores, have posted better results in the lead up to Christmas, they will enjoy a head start.

“Larger retailers are competing for Christmas trade with well performing online mid-size players like Kogan and Winning Group appliances, who opted for strong customer focus rather than aggressive discounting, and are now reaping the benefits of increased consumer willingness to buy white goods and other products online. Some importers have managed the falling dollar better than others and this has flowed through to the retailers in some cases, enabling them to achieve better margins whilst still remaining competitive.”

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