One major retailer said “Even now it’s too late to get current and new model stock in time for the peak Xmas period, I suspect there is going to be a lot of old stock on their shelves running into Xmas”.<\/span><\/p>\nSome vendors have complained of late payments with questions<\/p>\n
being raised about cash flow at the mass retailer. Several vendors that<\/p>\n
ChannelNews has spoken to said that they rejected overtures from Dick Smith<\/p>\n
management to stump large amounts of upfront cash for marketing before the<\/p>\n
close of the June 2015 financial year.<\/p>\n
One major vendor was asked to invest $1.6M upfront, another<\/p>\n
vendor rejected the Dick Smith offer after the mass retailer failed to deliver<\/p>\n
any sales forecasts for his product. <\/p>\n
Three weeks ago Neil Merola Marketing Manager at Dick Smith<\/p>\n
told ChannelNews that the reason that the Company had stock and cash flow<\/p>\n
problems was because they had “ordered stock in when the dollar was<\/p>\n
stronger” than the current $0.72 to the US dollar.<\/p>\n
Yesterday Dick Smith shocked the market today after<\/p>\n
confessing that it expects financial year (FY) 2016’s profits to be $5 million<\/p>\n
to $8 million below previous guidance for full year profit between $45 million<\/p>\n
to $48 million.<\/p>\n
Today their share value fell a further 4.6% as investors dumped the retailers stock. <\/p>\n
Financial Services Company Motley Fool said that when using<\/p>\n
the mid-point of the guidance adjustments equates to a 14 per cent profit<\/p>\n
downgrade blamed on weak October sales which may be an ominous omen travelling<\/p>\n
into the all-important Christmas shopping season.<\/p>\n
The big downgrade is a blow to the credibility of management<\/p>\n
with Motley Fool claiming that the market is mad – marking down the stock down<\/p>\n
27%.<\/p>\n
It was just over two months ago that the company issued<\/p>\n
previous guidance and blamed falling margins and a weak few weeks in October<\/p>\n
“This not going to wash with investors already nervous about the<\/p>\n
retailer’s outlook” said Motley Fool.<\/p>\n
Motley Fool now raises the question as to whether Dick Smith<\/p>\n
is too cheap to ignore?<\/p>\n
Prior to listing in late 2013, Dick Smith was part owned by<\/p>\n
Anchorage Capital an Australian-based turnaround and special situations private<\/p>\n
equity firm that sold its holdings for $2.20 per share.<\/p>\n
At today’s knocked-down price of 92 cents Dick Smith is<\/p>\n
either a screaming bargain or falling knife depending on whether it can turn<\/p>\n
around its fortunes as a public company.<\/p>\n
The market appears to think not given it’s now valuing the<\/p>\n
business at around $300 million, on just 7 to 8x Dick Smith’s forecast profit<\/p>\n
of at least $40 million for the year ahead.<\/p>\n
Assuming Dick Smith meets the bottom end of its new guidance<\/p>\n
of at least $40 million then profit will only be marginally lower than FY15’s<\/p>\n
profit of $43.1 million, which suggests small improvements would lead to a<\/p>\n
return to a growth.<\/p>\n
The business also now offers a huge trailing yield around<\/p>\n
13%, which is likely to decline marginally, but still be attractive in the year<\/p>\n
ahead at whatever the adjusted level.<\/p>\n
However, turnarounds seldom turn and the fact that margins<\/p>\n
and profits are falling despite same store sales being up 1.3% in Q1 2016 is<\/p>\n
another worrying sign as to the underlying health of the business.<\/p>\n
The business is likely feeling competitive heat from rivals<\/p>\n
JB Hi-Fi and Harvey Norman Holdings and yesterday Harvey Norman posted a strong<\/p>\n
quarterly sales update which suggests it’s winning the battle in the electronic<\/p>\n
goods space.<\/o_p><\/p>\n","protected":false},"excerpt":{"rendered":"A survey among vendors by ChannelNews reveals several consumer electronic vendors are now facing the real prospect that they will not get orders from the mass retailer for the Christmas New Year peak period for the simple reason that Dick Smith have a lot of capital invested in current stock that they are struggling to sell.<\/p>\n","protected":false},"author":42,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[28,51],"tags":[],"class_list":["post-90521","post","type-post","status-publish","format-gallery","hentry","category-archive","category-marketing","post_format-post-format-gallery"],"yoast_head":"\n
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