Smiths City first half profit all-but wiped out as fading consumer demand saps sales, margins

Smiths City Group posted a 5% fall in revenue and only just broke even in the first half of the 2018 financial year as economic concerns weighed on consumer appetites.

Revenue dropped to $108.6 million from $113.9 million in the six months to October 31, with profit at just $2000 compared to $1.5 million a year earlier.

The Christchurch-based retailer said costs associated with rebranding three Furniture City stores in Auckland and Whangarei and tough trading conditions weighed on its financial performance in the first half.

Chairman Craig Boyce said the outcome of the full year was linked to the success over the crucial Christmas trading period and the continuing success of the stores at Wairau Park and Mount Wellington.

"We expect no immediate changes to the trading environment and therefore sales and margin pressure is expected to continue," he said. "We are cautiously optimistic about our prospects for the remainder of the financial year."

Mr Boyce said the company had focused on establishing Smiths City in Auckland over the first half, as it is excited by the opportunity in the upper North Island "where strong demand for housing should underpin the performance of these stores for the long term."

"However, as we signalled in October, the imposition of lending restrictions on real estate earlier this year, significant reductions in home sales, uncertainty in the lead up to the election and during the formation of the government, weighed on consumer confidence and spending on the home," Mr Boyce said. "These conditions prevailed until the end of the half-year period and beyond and have resulted in intense competition, especially in the home electronics, digital products and whiteware categories, which are particularly exposed to competition from online retailers."

The company says upper North Island trading was disrupted by the transition of the stores, and it also suffered a $300,000 loss from closing its Ngauranga Gorge store in November.

"Many of the factors are short term in nature and therefore we expect all of our upper North Island stores will make a good contribution to the second half of the financial year," Mr Boyce said. "The board is confident the store transformation, the changes to logistics and our investment in staff training programmes can drive an uplift in performance."

Chief executive Roy Campbell said the company is committed to its new 'live better' store format, reinforced by trading in the North Island stores where it has already launched, and the new format will be rolled out progressively to the broader network over the coming year.

The board has appointed two new directors, Alistair Kerr and Ben Powles, after director John Dobson left following Smiths City's annual meeting in August. Mr Kerr is a professional independent director, while Mr Powles is chief executive of online retailer Fishpond.

The company declared a dividend of 1c per share, payable on Feb. 9. The company's shares last traded at 58c, down 1.7% today and have fallen 15% this year.

(BusinessDesk)