Australia's biggest Telstra Store operator, Vita Group, has hit out at an article in the Fairfax press after its share price slumped on Tuesday.
The Sydney Morning Herald revealed the telco was considering expanding its ownership over the Telstra Store network through rebuys of profitable outlets, including those run by Vita, according to a leaked internal Telstra document.
According to the SMH, Telstra was considering whether or not to renew 16 licensees' Telstra Dealership Agreements. The telco would be able to operate stores more affordably, given it would not have to pay commissions to licensees.
Vita Group’s share price, which opened on Tuesday at $3.25, crashed more than 20 percent to as low as $2.53 at 2pm before closing at $2.59. The dropoff marked the company’s lowest point since December 2016, when shares slipped to $2.30.
A Telstra spokesperson told CRN the leaked document mentioned was not substantial and that there were “no current plans to amend our arrangement with the Vita Group, which currently extends to 2020”.
“The document in question is an internal draft developed for discussion purposes only. It does not reflect the viability of any of the stores listed, and no decisions can be taken on individual Vita sites due to the nature of the agreement,” they said.
Publicly listed Vita Group reiterated Telstra’s comments in an ASX submission stating that store licences were secure.
“Telstra and Vita Group have enjoyed a strategic relationship for 22 years, presently governed by a Master Licence Agreement, which applies to all of Vita Group’s Telstra stores. The Master Licence Agreement has been extended a number of times, and currently extends to 2020,” Vita added.
“The terms of the Master Licence Agreement are confidential and any significant changes to it are subject to mutual agreement.”
Business as usual
The Telstra spokesperson said discussions around its Telstra network were business as usual.
“We regularly review our store footprint and the arrangements we have in place with our licensee network. The agreement we have in place with all our licensees clearly states when changes can be made and the process we must follow.”
In February, CRN revealed that Vita Group had bought three new Telstra stores for $5.7 million through its Fone Zone brand and was in negotiations to add a further five for $6 million.
The company expects the new additions to help lift average store earnings, with closures of lower-performing shops also on the table in order to optimise cash flow; one such store has already closed this first half.
The expansion move follows changes to the remuneration structure of Telstra’s licensee network, which could see smaller margins for partners.
Vita Group reported first-half revenues of $344 million to 31 December 2016.