Smiths City FY profit halves from year-earlier result bolstered by asset sale

Smiths City Group's annual profit more than halved without the one-off gain from the sale of its Colombo St store in 2016, although underlying earnings jumped from wider margins in its finance division and a smaller restructuring bill.

Net profit fell to $2.4 million, or 4.5 cents per share, in the 12 months ended April 30, from $5.6 million, or 10.6 cents, a year earlier when it benefited from a $1.8 million gain on a property sale and $2.5 million of tax credits, the Christchurch-based company said in a statement. Underlying earnings climbed 54 percent to $2 million as the appliance and furniture retailer faced a smaller restructuring bill which helped offset increasingly tight competition. Revenue increased 2.5 percent to $227.4 million.

Smiths City's finance division delivered the lion's share of the company's earnings, increasing profit to $3.7 million from $3 million a year earlier, even as revenue shrank 11 percent to $9.2 million. The retail division's earnings fell to $700,000 from $900,000 a year earlier, while revenue rose 3.1 percent to $218.2 million.

"In the face of rising interest rates and consumer uncertainty, the core Smiths City retail stores have turned in a creditable performance," chairman Craig Boyce said. "The finance business, while still delivering strong earnings, has lost ground as our competitors have aggressively expanded the availability of credit."

The retailer is two years into a five-year transformation programme where it wants to drop low margin business and expand its presence in Auckland.

To help broaden its reach in the North Island it bought Furniture City last year, however, Boyce said sales at the new acquisition had struggled and in the coming months it will be rebranded under the retailer's new 'live better' brand and store formats.

The board declared a final dividend of 2.5 cents per share, payable on Aug. 11 with an Aug. 4 record date, taking the total return to 3.5 cents, unchanged from a year earlier.

Earlier this month the company announced plans for a $5.7 million capital return through a compulsory share buyback, which need approvals from the High Court, Inland Revenue, the retailer's lender ASB Bank and shareholders.

Chief executive Roy Campbell said demand for consumer durables was weakening as interest rates increase and with growing uncertainty in the housing market, while rural areas are still recovering from last year's downturn in global dairy prices.

"Nevertheless, the rollout of the new 'live better' brand livery across our national network, the transition of flagship stores to the new format and the refresh of our finance offer will position us well to compete effectively and continue to build on the Smiths City heritage," he said.

The shares last traded at 67 cents and have declined 2.9 percent so far this year, lagging behind an 8.1 percent gain on the S&P/NZX All Index.

(BusinessDesk)