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Smiths City narrows FY loss as finance offsets soft retail demand

Monday 1st July 2019

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Smiths City narrowed its full-year loss as growth in same-store sales and a strong performance from its finance arm offset softer retail demand in the second half of the year. 

The furniture and appliance retailer reported a net loss of $1.7 million in the year to April 30 versus a $7.2 million loss in the prior year. Revenue was down 4.4 percent at $206.4 million, following store closures and slower trading in the second half of the year. 

The company closed stores in Queenstown and Gisborne, leaving it with 32 sites. These followed on the closure of stores in Ngauranga Gorge and Riccarton in the prior period when it ended the year with 34 stores.

The retailer's dismal result in 2018 prompted it to change tack in a plan to overhaul the business and address underinvestment, a lack of understanding of what customers want, and deficient IT systems.

Key initiatives included closing under-performing stores across the country and pumping money into the ones where it sees potential. 

Same-store sales - excluding store closures - rose 2.8 percent to $192 million – reflecting strong growth in the firm's online channel and operational improvements across the network, it said.

The finance division lifted revenue 16.5 percent to $10.6 million from $9.1 million in the same period a year ago, while trading profits increased 72.4 percent to $5 million from $2.9 million in the same period a year ago. 

While the company has accelerated its transformation, "the strong gains we saw in the first half of the year – when we celebrated our centenary – have not been sustained in the second half. This was particularly the case during the crucial Christmas trading period and it continued into the remainder of the financial year, partly reflecting the softening in house prices and consumer confidence," chair Alistair Kerr said. 

“It is clear Smiths City must continue to build resilience in its business to respond to these variable market conditions," he added.

Since the end of the financial year, it has moved to rationalise its Auckland footprint which "does not diminish our commitment to the upper North Island," he said. That includes exiting and relocating from Wairau Park and shrinking its Mount Wellington location. 

"We are working to identify our next sites in the Auckland region and expect to announce these in the coming months," chief executive Roy Campbell said. 

He said it has become clear Smiths City can meet demand with smaller stores, supported by an online presence. 

"Conversely, in our Christchurch stores and many across provincial New Zealand, larger stores with broader ranges play a much greater role in influencing customer behaviour," he added. 

While times were tougher in the second half, gross margins recovered in the final month of the financial year and "this positive sentiment has continued in the first months of the new financial year," said Kerr.

While it is still too early to provide guidance, the board retained its view that it is not yet appropriate to pay a dividend.

"The board will continue to review Smiths City’s dividend policy but at present it believes the company is unlikely to resume paying dividends in the current financial year," it said. 

The stock last traded at 31 cents and is down 12.7 percent so far this year. 


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