Dick Smith fire sale fails to ignite shares

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Dick Smith fire sale fails to ignite shares
Nick Abboud

Dick Smith has failed to impressed critics with its clearance sale after taking a $60 million write-down on inventory.

The company kicked off its sale last weekend, advertising discounts of up to 70 percent off on stocked items. However, specific discounts aren’t listened on the retailer’s website, and vary between each store depending on stock availability.

Major discounts were mostly on private-label products such as phone chargers, while discounts on premium stock like Apple and Fitbit were around 10 to 20 percent, as reported by Fairfax.

Investor analysts from Deutsche Bank went to the stores and told News Limited:  "Unsurprisingly, a large amount of the inventory appears to be aged with the majority of promotions on accessories to suit superseded hardware (eg: Galaxy S4 and iPhone 4). There were also a number of deep discounts on current model accessories but the discounts were generally shallower than they were for older products."

Chief executive Nick Abboud hs previousy said further cash impairments may be required depending on Christmas trading.

It is a sharp contrast to the surprising turnaround being heralded earlier this year, as Dick Smith reported a $56.8 million year-on-year increase in sales to $693.8 million for the six months ending 31 December 2014, with net profit after tax up from $25 million to $25.2 million.

The retailer was sold off by owner Woolworths for $20 million in 2012, then floated and reported a net profit after tax of $42.1 million in its first year as a public company, a massive surge from $6.7 million one year previously.

Now, the company’s stock price has plummeted from around $2 per share at the start of August to less than 40 cents at the time of publishing.

Founder and company namesake Dick Smith even told Fairfax he’s not surprised by the company’s recent performance.

"You don't need to be very bright to realise that a company worth $90 million one moment is unlikely to be worth $500 million 12 months later just because it had a change of ownership,” Smith told Sydney Morning Herald.

"It was pretty obvious to me that anyone buying those shares would be taking quite a risk."

He added that former Woolworths chief executive Roger Corbett told him that the electronics retailer was making hundreds of millions out of Dick Smith before selling the company off in 2013, but ran into trouble when it opened too many stores.

Dick Smith had 393 stores as of August 2015.

"I'm hoping it'll get through its present problems, as it has made a lot of money for people in the last 47 years, including me," said Smith.

"A lot of Australians like buying from Dick Smith Electronics, so surely it must be able to be turned around. I can't see why they shouldn't be able to."

Despite poor October and November sales, overall sales for the first quarter of the 2016 financial year grew 6.9 percent.

Dick Smith continued to point towards New Zealand as an underperforming market, with profits down 67.5 percent to just $4.4 million.

For the 2015 financial year – its second full year since spinning off from Woolworths – the retailer announced sales were up 7.5 percent to $1.3 billion. However, net profits only grew 3.1 percent to $43.4 million. Earnings before interest, tax, depreciation and amortisation (EBITDA) were up 7.3 percent to reach $79.8 million.

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