Dick Smith Shares Smashed Concerns Over Apple Discounting Strategy
David Richards
19 Aug 2015
At the close of play the stock was down 15% to a new low of $1.67, they had been down as much as $1.65 which is well below their December 2013 issue price of $2.20.
Chief executive Nick Abboud told ChannelNews yesterday that he was confident that their new Connected Home strategy which will see the mass retail convert 100 stores to selling appliances is on track and will deliver growth.
He also confirmed that the Company is set to grow House Brand products from 12.8% to 15% this year. The house brand products are sold right next to similar branded products.
He has also insisted that he will continue to discount Apple products despite several major vendors expressing concern that Dick Smiths discount strategy is not only hurting Dick Smith but the industry in general.
“A year ago we were accused of leading prices down by discounting Apple every week or every second week. That was done for very good reasons, to drive foot traffic,” Mr Abboud told Fairfax Media.
“We are now seeing recurring foot traffic coming into the store,” he said. “We’re not backing off on discounting … but we’re just not going to be as aggressive.
“We are just tweaking our business slightly because we make more profitability out of that.”
The change in tack spooked shareholders and analysts, who suspect the reduction in discounting cost the retailer market share in the June quarter and could crimp sales growth in 2015.
During the past 12 months Dick Smith sales rose 8.6 per cent comparable store sales rose 2.4 per cent in Australia and only 1 per cent across the group.
Dick Smith reported a 3.1 per cent increase in underlying net profit to $43.4 million in 2015 – towards the lower end of its 3 to 5 per cent guidance range – and Mr Abboud expects another year of growth in 2016, with net profit expected to be between $45 million and $48 million.
At JB Hi-Fi, CEO Richard Murray has clearly decided business sales as a major growth opportunity.
Dick Smith managing director Nick Abboud is going all out for retail growth – busily building a database of 2 million retail customers while opening new stores and shifting into small appliances – but has made it clear he’s not prepared to sacrifice margins to drive sales he told the Financial Review.
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