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Smiths City annual profit drops 30%, sales rise as retailer ditches low-margin business

Friday 24th June 2016

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Smiths City Group reported a 30 percent decline in annual profit while at the same time lifting sales as the Christchurch-based retailer overhauled its operations to exit low-margin business.

Net profit fell to $5.6 million, or 10.6 cents per share, in the year ended April 30, from $8 million, or 15.2 cents, a year earlier, Smiths City said in a statement. Trading profit rose 54 percent to $4 million on a 0.2 percent rise in revenue to $221.9 million. In 2015, Smiths City recognised $8.5 million in other income due to insurance payments to help repair its flagship Colombo St store. 

Last May, the company appointed a new chief executive, Roy Campbell, who pushed the company to undertake a strategic review. Today, it said efforts over the past year were "only the beginning of the journey" and the company will reshape its store, online and logistics operations and renew its focus on its finance business.

Smiths City repaid $10.1 million in bank debt in the year, leaving it with none. Its finance business held $66.6 million of finance receivables and owed $56.2 million at the balance date, compared to receivables of $68.7 million and debt of $57.4 million a year earlier.

Chairman Craig Boyce said significant change had occurred throughout the company, including eliminating loss-making parts of the business such as the appliance retail stores and exiting non-core business activity such as the Alectra appliance service operation.

“We’ve reduced costs and improved our retail performance," Boyce said. "The changes have successfully unified the company under the core brand and re-energised the business."

Chief executive Campbell said there had been major changes in Smiths City operations and the shift away from commodity appliances had contributed to improved sales. Operating revenues rose 2.6 percent to $201 million, and delivered margin improved 1.19 percent year on year, he said. 

In January, the company's trading arm Smiths City (Southern) agreed to buy the business and assets of Auckland-based Panmure Furniture City 1983 and its logistics operation Lucky Dragon for $5.85 million, which includes two stores in Auckland, one in Whangarei, an internet store and a distribution facility.

The Furniture City purchase had been a success in terms of profitability and the addition of its warehouse and store network, the company said. 

The shares gained 3.9 percent to 54 cents, and have fallen 7.1 percent this year. The local market has been under pressure today with investors nervous about the outcome of the UK referendum on whether to leave the European Union. The S&P/NZX All Index was recently down 1.5 percent to 1273.24.

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