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Smiths City ups profit by 62%

Monday 28th June 2010

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Smiths City, the Christchurch-based furniture and electronics retailer, made a net profit of $1.64 million in the year to April 30, up 62% on the previous year, by slashing its interest bill as sales fell 5.3% to $226.1 million.  

Driving the improvement was a substantial reduction in interest payments on both SmithCorp Finance and on bank loans, with total interest payments falling to $7.2 million in the year under review from $10.2 million a year earlier.

Directors declared a 1 cent final dividend, unimputed because the company paid no tax on the profit, thanks to tax losses from previous years being carried forward, payable on August 13.  Earnings per share improved to 3.1 cents per share, compared to 1.9 cents a year earlier.

Same store sales fell by 3.8% over the year, although March, April and May months were all ahead of the previous year on a same store basis.  The furniture and floorings market had shrunk by 5.6% over the year to April 2010, and was now 20.8% below activity levels seen in the 12 months to April 2008.

Managing director Rick Hellings described a year in which competition placed "severe pressure" on big ticket retailers' margins, even in areas such as the flat screen TV market, where sales volumes remained buoyant, compared to the rest of the Smiths City inventory.

While the profit improvement was pleasing, it was"off a low base" and directors accepted that in normal trading conditions, it would have been an unacceptable result.

Unprofitable and non-strategic store closures had helped the bottom line, while reopening Wellington stores in Porirua and Upper Hutt in March had exceeded expectations and the company was actively seeking "to increase our footprint" in the Wellington market.

In coming months, Smiths City would focus on retaining market share by matching competitor offers where it was profitable to do so, with particular concentration on the furniture market.

While retail market conditions remained tight, and the October 1 GST increase made predictions difficult, the company expected to "continue to yield improvements".

In a separate statement to the NZX, Smiths City said it expected a $1.9 million impact in the current year from the change in tax depreciation on buildings announced in the May Budget,  "ignoring any potential impact of the Group’s unrecognised tax losses."

Smiths City shares were down 3.1% to 31 cents in trading on the NZX this afternoon.

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