Smiths City reports operational improvementsSummary: Group revenue falls to $95.1 million from $114.2 million following store closures and strong prior year trading; same store sales fell by 14.6%. Net losses before tax of $3.8 million, down from a net profit before tax (NPBT) of $0.6 million; excluding the one-off costs associated with the rationalisation of the Auckland store footprint, net losses were $2.3 million. Net cash reserves increase to $9.2 million from $6.4 million at the end of April 2019 lifted by improvements in operating cashflows and reductions in working capital. Interest-bearing debt at the end of October 2019 was $65.0 million unchanged on April 2019, but post balance date Smiths City has repaid $3.0 million of borrowings. Outlook for the full year linked to the success of the Christmas trading season. National furniture and appliance retailer Smiths City (NZX.SCY) today reports continued progress with its ongoing operational reset.Revenue for the half year fell to $95.1 million from $114.2million in the same period a year ago, following the closure of two stores compared to the same time a year ago and slower trading than the prior year, which benefited from company’s centenary celebrations. Promotions directly linked to these celebrations lifted sales by around $10 million in the 2019 financial year.. Same store sales fell 14.6% to $86.7 million from $101.5 million in the same period last year.The company posted a half-year net loss before tax of $3.8 million down from a net profit before tax in the prior year of $0.6 million. The fall largely reflected weaker trading, particularly in Canterbury, which generates around a quarter of sales, and $1.5 million of losses associated with the rationalisation to the company’s store footprint in Auckland. Excluding these costs net losses before tax would have been $2.3 million.Smiths City Chair Alastair Kerr said: “The results for the half year belie the significant operating improvements we have made in the business. As part of the ongoing operational reset, the company has driven a sharp turnaround in operating cashflow as it reduced costs and drove down the capital employed in the business.“Our focus on repositioning the store network to ensure stores are in the right locations, are sized appropriately and deliver an offer that resonates with regional tastes is also seeing results. We have started to see the impact of these changes in the first half and we expect improvements to become increasingly evident in the second half of the year. There is still plenty of work to do and our full year result is, as always, heavily linked to the outcome of the Christmas trading season. However, we are pleased with the progress we are making.” Operational performanceChief Executive Roy Campbell said the winter months of the 2020 financial year were tough in Smiths City’s core categories of whiteware and furniture and this was particularly the case in Canterbury, the company’s largest sales territory.“Revenue in the retail business fell to $92.2 million from $111.0 million, while losses widened to $5.8 million from a loss of $0.6 million in the same period a year ago,” Mr Campbell said.“As Alastair has noted the rationalisation of our Auckland store footprint including the closure of our store in Wairau Park on the North Shore and the sublease of half of the Mount Wellington store accounted for a quarter of losses in the retail business.“Across the broader retail business, we have made considerable progress. In the face of soft trading conditions, particularly in the winter trading months, we relentlessly drove the business to release cash and this saw a reduction in working capital.”Inventories fell to $32.5 million from $34.8 million at the end of April 2019. Trade and other receivables fell to $6.0 million from $7.4 million in April 2019, while reduced stock purchases have seen trade payables fall to $18.9 million from $22.4 million at the end of April.Operating cashflow was positive at $7.4 million compared to a cash outflow of $3.1 million in the same period a year ago. Some $7.1 million of this improvement was due to changes to the accounting treatment of leases. Under NZ IFRS 16 these cashflows are recognised as a financing cash outflows.Nevertheless, stripping out these adjustments, operating cashflows improved by $3.4 million on the same period in the prior year. Meanwhile, investing cashflows were positive at $2.5 million compared to cash outflows of $0.8 million in the same period last year.Group employee expenses fell to $13.7 million from $14.7 million in the same period a year ago as we managed our workforce for the reduced turnover. Other group operating expenses fell to $10.9 million from $16.7 million, with most of the fall due to changes in the accounting treatment of leases.“We remain intensely focussed on delivering an excellent consumer experience across all customer touchpoints, from the store network, to online and our call centre. Strengthening our reputation for value, integrity, honesty, and fairness is at the heart of these efforts.“We have completely reset the management of our stores and we are now starting to see improvements in like-for-like store growth, online and commercial sales and margins. While there is still much work to do, we are now in a better position than we have been for some time.“There can be no doubt that the time taken to embed a stronger, more customer-centric culture across the business impacted our result in the first half of this year. However, the positive growth in sales and margins we are starting to see at the start of the second half of the financial year would not have been achievable without taking these initiatives.” Smiths City FinanceIncome in the finance business was steady at $5.4 million compared to $5.3 million in the period a year ago, while Net Profit before tax at $2.3 million were up slightly compared to the $2.1 million last year.Finance receivables fell to $63.5 million from $65.8 million at April 2019, largely reflecting the fall in group retail sales. Finance company margins improved slightly reflecting the extension of loan periods when compared to the same period a year ago.Mr Campbell said: “We have put a lot of effort into increasing the visibility of our finance business through our advertising and through our in-store activity. For example, finance terms are now routinely displayed alongside prices in promotional material and in-store. As one of the few retailers that owns a finance book, we continue to explore ways to use this capability to better meet the needs of our customers and build on this strategic competitive advantage.” Balance sheetSharp reductions in working capital have seen a fall in the net debt position of the group. We ended the period with $9.2 million of cash and cash equivalents, compared to $6.4 million at the end of April 2019 and $2.3 million at the same time a year ago. Loans and other borrowings at the end of the period were $65.0 million, which was unchanged on the April figure. However, post balance date the company has cut its debt by $3.0 million. Outlook“Since the start of the new financial year, our trading has improved and is exceeding expectations,” Mr Campbell said. “Meanwhile, our commercial business has been growing strongly and now boasts a strong sales pipeline that we expect to convert in the coming six months. We are cautiously optimistic about our prospects for the important Christmas trading period.” For more informationInvestors:Roy Campbell Chief Executive ph. 03 983 3032 m. +64 27 2239574Media:Richard Inder The Project m. +64 21 645 643 About Smiths City Group LimitedSmiths 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 32 stores (including 2 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
