Smiths City first-half profit slides 46% on restructuring costs, year-earlier asset sale not repeated

Tuesday 20th December 2016

Smiths City Group, the appliance and furniture retailer, reported a 46 percent drop in first-half profit as it faced new restructuring costs and a year-earlier gain on its Colombo St store wasn't repeated, even as underlying earnings and sales rose.

Net profit fell to $1.4 million, or 2.6 cents per share, in the six months ended Oct. 31, from $2.6 million, or 4.8 cents, a year earlier, the Christchurch-based company said in a statement. Stripping out $695,000 of restructuring costs and a $1.8 million gain on a property sale in 2015, trading profit rose 67 percent to $113.9 million on a 7.2 percent increase in revenue to $113.9 million.

"Both margin and revenue improved on a same-store basis (7.7 percent increase in revenue compared to the same period in the year prior and a pleasing 1 percent increase in gross margin)," chief executive Roy Campbell said in his commentary. "The improvement in our trading activities derives in part from our reset of our marketing activities based on the research carried out early in the year; in part from our focus on in-store execution and our continued enhancement of our product selection."

Last month Smiths City said the acquisition of Furniture City, giving it a bigger presence in the North Island, underpinned the increase in sales, while also agreeing to new terms for its finance business.

The board declared an interim dividend of 1 cent per share, payable on Feb. 10 with a record date of Feb. 3, which will be fully imputed as the company uses up its remaining carry forward tax losses. That payment was unchanged from a year earlier.

The shares fell 1.4 percent to 69 cents, and have gained 25 percent so far this year.

The bulk of Smiths City's restructuring costs in the period came from changing the way its buying department operates to a category management approach, with inventory shrinking 20 percent in the period. The retailer anticipates more changes are needed and is introducing a new information platform, with a plan expected to be put to the board next year for a 2018 implementation.

"Attention to inventory, debt and sales levels have resulted in a leaner, more profitable, more competitive Smiths City that we are justifiably proud of," Campbell said. "Given our strengthened position, it is appropriate for the management and board to identify opportunities for growth, from both organic and acquisitive perspectives with a view to providing greater returns for our shareholders and with a clear view to ensuring the longevity of this iconic Kiwi brand that New Zealanders depend on every day."

The company's retail business continued to dominate revenue with sales up 8 percent to $109.3 million, generating a profit of $611,000 compared to a loss of $149,000 a year earlier. The finance segment's revenue fell 9.9 percent to $4.6 million, although the division's profit jumped 38 percent to $2.2 million.

BusinessDesk.co.nz

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