Is Dick Smith Set To Be Another Clive Peeters? As Share Value Plunges 85%
Just after the ASX opened today shares in Dick Smith plunged more than 50 per cent to 32?. They started the year at$2.29.
Last month Dick Smith CEO Nick Aboud forecast a 2016 net profit between $37 million and $43 million, compared with earlier guidance between $45 million and $48 million and last year’s net profit of $43.4 million.
The shares plunged from $1.30 to $0.75.
Today they took another dive with several distributors now telling ChannelNews that they are reluctant to supply the mass retailer unless they have “cash up front” or a “bank guarantee”.
ChannelNews has been told today by insiders, that the retailer is struggling to meet internal sales and profit targets and that even the numbers forecast by Aboud back in October will not be met.
Senior store management said that Dick Smith stores are not attracting floor traffic “anywhere near” what JB Hi Fi, The Good Guys and Harvey Norman are getting running into the peak buying period.
The catalyst that triggered today’s decline was a statement to the ASX indicating that the consumer electronics retailer slashed the value of inventories by at least $60 million and the stock is now down 85 per cent since the start of the year and has a market capitalisation of just $74.5 million.
Dick Smith launched an inventory review after a 4 to 5 per cent slump in same-store sales in October prompted managing director Nick Abboud to step up discounting and marketing and warn that profits could fall as much as 15 per cent this year as gross margins came under pressure.
Mr Abboud said on Monday that November trading was also below expectations, stock holdings remained too high and the company was “unable to re-affirm the profit guidance previously provided”.
Mr Abboud said the inventory review was still underway, but Dick Smith’s board had decided to book a non-cash impairment charge of $60 million before tax and further impairment may be required, depending on Christmas trading.
Earlier this month ChannelNews exclusively tipped that the Company had inventory problems and that revenues were falling.
“We remain cautious on the outlook for the Christmas trading period. We will continue to drive sales, maintaining flexibility on gross margin to reduce inventory and improve our net debt position.” Aboud said today.
The statement issued to the ASX today read:
The inventory review is being conducted with the assistance of external consultants and is aimed at determining the appropriate size of various categories, improving the depth and breadth of inventories, and identifying the level of marketing support to achieve inventory cover targets.
Dick Smith management claim that they want to boost its “share of voice” and has flagged deeper discounts on brands such as Apple and Fitbit.
A Harvey Norman executive told ChannelNews, who will pay for this. “Dick Smith can discount all they like but if manufacturers and distributors stop supplying them they will have no stock to discount. There is also the issue of whether they will be in a position to pay vendors after they have discounted stock running into Christmas and the New Year”.
They Added “Discounting by Dick Smith could have an impact on other retailers but I doubt it because very few people are actually walking into their stores”.
Another major retailer said “If they do move to rampant discounting they are more likely to appeal to online shoppers and this is still only a small part of the total consumer electronics mix.
“They are heading to become another Clive Peeters or WOW Sight + Sound both these Companies went broke after heavy discounting. WOW Sight + Sound who while being Queensland based did exactly what Dick Smith are doing by discounting heavily running into Christmas and then declaring after Christmas that there was not enough money around to pay their bill so they went broke”.