Smiths City now a national retailer with the launch of Auckland stores
Former Furniture City stores in Wairau Park, Mount Wellington and Whangarei now trading well under the new Smiths City ‘live better’ brand livery. New directors appointed bringing a depth of retail and online experience to the board
Half-year revenue falls 4.6% to $108.7 million and same store sales fall 5% to $102.9 million as tough trading conditions and store transitions weigh on financial performance.
Net profit before tax ‘break even’ down from $1.5 million in the prior year.
Half-year transition of upper North Island stores to the new Smiths City ‘live better’ brand livery completed ahead of the Christmas shopping season, with all stores trading strongly.
Board strengthened with the appointment of directors with broad retail and online experience.
Board declares fully-imputed interim dividend of 1.0 cents per share; paid on Friday 9 February 2018.
National furniture and appliance retailer Smiths City (NZX.SCY) today reports it has successfully completed the transition of its three former Furniture City stores in Auckland and Whangarei into the new ‘live better’ brand livery. However, the costs associated with this transition and tough trading conditions have weighed on the company’s financial performance for the six months ended 31 October 2017.
Smiths City also announces the appointment of WorldFront/Fishpond Chief Executive Officer Ben Powles and Professional Director Alastair Kerr to the Smiths City Board of Directors. Both join the board 19 December 2017 and bring to the company a wealth of experience in national, international and online retailing.
Group revenue for the six months to 31 October 2017 fell 4.6% to $108.6 million from $113.9 million in the same period a year ago, with same store sales falling 5% to $102.9 million from $108.4 million in the same period a year ago. The falls in group revenue and same store sales were greater than the respective 3% and 4% falls forecast in October following weaker-than-expected trading in the final weeks of the six-month period.
During the six months Smiths City benefitted from the opening of a new store in Hastings, strong results from Smiths City Finance, healthy sales from the recently-refurbished store in Whangarei and tight cost control. However, these gains have not been sufficient to offset the impact of trading disruptions associated with store refurbishments and closures and the continuation of the tough trading conditions signalled in October.
Chairman Craig Boyce said: “Over the last six months a key focus has been establishing Smiths City in Auckland We achieved that goal earlier this month with the opening of the rebranded Furniture City stores in Wairau Park and Mount Wellington in Auckland
“These Auckland stores and the store in Whangarei, which opened with the new ‘live better’ livery in September, are trading well. Although it is early days for the Auckland stores, the Whangarei store, since opening, has delivered sales 17% ahead of the same period a year ago.
We are excited by the opportunities we see 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.
“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.
“Meanwhile, the impact of these conditions on our financial results has been exacerbated by the disruption to trading caused by the transition of the upper North Island stores to the ‘live better’ livery and the $300,000 loss flowing from Ngauranga Gorge store in Wellington which was closed in November. Ngauranga was the last appliance only format store. In addition to lost sales during store refurbishment, we cleared inventory ahead of the store closures at lower margins.
“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. Meanwhile, we continue to drive efficiencies in the business, maintaining inventories appropriate to the trading conditions and driving cost out of the business.
“The board is confident that the store transformation, the ongoing changes to logistics and our investment in staff training programmes can drive an uplift in performance. It is therefore committed to continuing the transformation programme we began three years ago, including the roll out of the ‘live better’ brand livery progressively across the national store network. It is also committed to continuing to drive the operating efficiencies that have, in some measure, insulated the group from the tough financial conditions we have faced over the last six months.”
As at 30 October 2017, the company had net cash and cash equivalents of $9.9 million on hand and total debt of $55.9 million.
All debt is held against Smiths City Finance receivables. “In October we deferred our planned $5.7 million capital distribution. As we noted, the ongoing revitalisation programme is steadily making Smiths City a more resilient business, but as it is taking place in a challenging trading environment, the board believes the current conservative capital structure is appropriate,” Mr Boyce said.
“Still, reflecting our confidence in the future of the business under the ‘live better’ brand strategy and the long-term potential for the business to grow we have resolved to pay a fully-imputed interim dividend of 1.0 cents per share unchanged from the prior year.”
The record date for dividend entitlements is Friday 2 February 2018 and the payment date is Friday 9 February 2018. We have committed to review our capital structure in the New Year.
Mr Boyce said following the departure of John Dobson after the company’s annual meeting in August, the board commenced a review of its capabilities. And after a thorough process it has recruited Alastair Kerr and Ben Powles to join the board.
“Ben and Alastair bring a depth of online, international and national retail and governance expertise to the board. Their experience with organisations as diverse as Fishpond, the Body Shop, Williams Sonoma, among many others, will provide fresh perspectives that will assist the company as we head into our centenary and beyond.”
Mr Kerr is a professional independent director and has held many senior executive roles internationally with organisations such as Marks and Spencer, Mothercare, Virgin, The Body Shop, L’Oreal and Williams Sonoma Inc. in a career spanning 35 years. As an Independent Director, he has extensive governance experience and has sat on boards across many different regions and sectors. He is currently Chair of Steamer Trading Limited, a UK based kitchenware retailer and Cognition Education based in Auckland. He is also a Director of Fuller Smith and Turner PLC, a brewer operating in London and the South of England; and Paper Plus, the book retail co-operative.
Mr Powles is Chief Executive of one of Australasia’s largest home-grown online retailers World Front/Fishpond. He started his career with one of New Zealand’s largest law firms, before making a switch to a career in high growth technology companies. He has worked in senior management roles in a variety of industries including telecommunications, finance, and advertising, and founded and sold a software development company. He holds a Bachelor of Arts and a Bachelor of Laws from Auckland University.
Smiths City Chief Executive Roy Campbell said the former Furniture City stores had faced challenging trading conditions over the six-month period. He said he is confident the ongoing store revitalisation programme would enable Smiths City to stand up to the competition both in Auckland and further afield.
“Same store sales for the six-month period, excluding the Furniture City stores, were down by only 2.9% and margins remained strong. This performance underscores the value of Smiths City’s unique proposition of great service, a pleasant instore and online experience and the assurance of a trusted national brand.
“The continuing strong trading in the Hastings store, the good start we have made in Whangarei and the early results from our Auckland stores reinforce our belief that the new ‘live better’ store format delivers an in-store experience that resonates with customers.
“The new format will be rolled out progressively to the broader network over the coming year. Meanwhile, our new Auckland distribution centre, from where we service the majority of our North-Island stores has introduced supplychain efficiencies and helped us to ensure all stores are delivering the optimum range.
Smiths City Finance
Half-year Smiths City Finance revenue fell to $3.8 million from $4.6 million in the prior year as the company met the market with long-dated interest-free finance offers. But half-year segment profits increased 7.5% to $2.4 million from $2.2 million in the same period a year ago as the company benefited from more favourable finance costs following the transition of the loan book to ASB. The loan book grew modestly to $64.7 million from $64.2 million in the same period a year ago, largely reflecting the interest-free loan promotions during July and August.
“Smiths City Finance continues to play an important role in cementing our relationship with customers. Importantly, it helps them to ‘live better’ by putting big ticket home furnishing and appliances within our customers reach. Following the appointment of a new General Manager of Finance we are now looking at how we can make our finance offer more relevant and better able to compete with the profusion of credit providers. We are confident that our point-of-sale offer represents a strategic service capability that others will struggle to match,” Mr Campbell said.
Costs were contained with employee costs falling by 6.0% to $15.5 million from $16.5 million in the same period a year ago. These gains were offset by higher marketing costs to support the new store openings, and the additional operating lease expense for the new stand-alone store in Hastings. The company continues to invest in its people and training to ensure that it is recruiting and incentivising talent to drive performance improvements.
Mr Boyce said the outcome of the full year was linked to the success over the crucial Christmas trading period and the ongoing success of the stores at Wairau Park and Mount Wellington. “We expect no immediate changes to the current trading environment and therefore sales and margin pressure is expected to continue. “We are cautiously optimistic about our prospects for the remainder of the financial year,” Mr Boyce said.
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About Smiths City Group Limited
Smiths City Group (NZX.SCY) was founded in Christchurch in 1918 and has a proud tradition as one of New Zealand’s oldest and largest retail chains. The company floated on the stock exchange in 1972 and operates 36 stores (including 3 clearance centres) nationwide. It also operates the Smiths City Finance, and the Smiths City Commercial businesses. On the web: www.smithscity.co.nz and www.smithcitygroup.co.nz.