Smiths City first-half profit slides

Both margin and revenue improved on a same-store basis.

Smiths City Group reported a 46% drop in first-half profit as it faced new restructuring costs and a year-earlier gain on its Colombo St store wasn't repeated, even as underlying earnings and sales rose.

Net profit fell for the Christchurch-based appliance and furniture retailer to $1.4 million, or 2.6c per share, in the six months ended October 31, from $2.6 million, or 4.8c, a year earlier, it says in a statement.

Stripping out $695,000 of restructuring costs and a $1.8 million gain on a property sale in 2015, trading profit rose 67% to $2.2 million on a 7.2% increase in revenue to $113.9 million.

"Both margin and revenue improved on a same-store basis (7.7% increase in revenue compared to the same period in the year prior and a pleasing 1% increase in gross margin)," chief executive Roy Campbell says in his commentary.

"The improvement in our trading activities derives in part from a reset of our marketing activities based on research carried out earlier in the year, our focus on in-store execution and our continued enhancement of our product selection."

Last month, Smiths City says the acquisition of Furniture City, giving it a bigger presence in the North Island, underpinned the increase in sales while also agreeing to new terms for its finance business.

The board declared an interim dividend of 1c per share, payable on February 10 with a record date of February 3, which will be fully imputed as the company uses up its remaining carry forward tax losses. That payment was unchanged from a year earlier.

The shares fell 1.4% to 69c, and have gained 25% so far this year.

The bulk of Smiths City's restructuring costs in the period came from changing the way its buying department operates to a category management approach, with inventory shrinking 20% in the period. The retailer anticipates more changes are needed and is introducing a new information platform, with a plan expected to be put to the board next year for a 2018 implementation.

"Attention to inventory, debt and sales levels have resulted in a leaner, more profitable, more competitive Smiths City that we are justifiably proud of," Mr Campbell says.

"Given our strengthened position, it is appropriate for the management and board to identify opportunities for growth, from both organic and acquisitive perspectives with a view to providing greater returns for our shareholders and with a clear view to ensuring the longevity of this iconic Kiwi brand that New Zealanders depend on every day."

The company's retail business continues to dominate revenue with sales up 8% to $109.3 million, generating a profit of $611,000 compared to a loss of $149,000 a year earlier. The finance segment's revenue fell 9.9% to $4.6 million, although the division's profit jumped 38% to $2.2 million.

(BusinessDesk)

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