Smiths City Group has delayed a planned $5.7 million capital return to shareholders a second time as increasingly tight trading conditions prompted the retail chain to downgrade its first-half earnings outlook.
Christchurch-based Smiths City won’t consider the capital return until 2018 as stiff competition and the need for more investment in its transformation programme led the board to maintain a more conservative capital structure.
The retailer already delayed plans to pay 72 cents per share in a compulsory acquisition and cancellation of three shares in every 20 over outstanding regulatory issues, having first floated the return in June.
The retail environment has attracted strong competition, especially in consumer electronics, digital products, and whiteware.
Smiths City said revenue will likely fall 3 per cent in the six months ending October 31 from the $113.9 million reported a year earlier, implying first-half sales of about $110.5 million.
“We expect group profitability to be lower than the same six months last year, with a weaker retail performance partially offset by a strong performance from our finance operations,” chair Craig Boyce said in a statement.
“In the face of these challenges, it is appropriate the company maintains a more conservative level of gearing. The Smiths City board has resolved to review the position during the 2018 calendar year.”
In August, Smiths City said there was a significant opportunity in expanding the high margin finance division, which delivers the lion’s share of the company’s earnings.
The company’s shares were unchanged at 62c.
“Our ongoing revitalisation programme has over the last three years made Smiths City a more resilient business,” said Boyce.
“However, the board is mindful that this programme is taking place in a challenging retail trading environment. The imposition of lending restrictions on real estate early this year, significant reductions in residential home sales, uncertainty in the lead up to the election and the formation of a Government, have affected confidence, and led to reduced spending on the home.
“Furniture and appliance retailers have responded with aggressive price competition, which has lifted retail sales and dealt with overstocking at the expense of profit. In the home electronics, digital products and whiteware categories margins have declined to levels unseen before. The home furnishing category has maintained more acceptable margins.
“In the face of these challenges, it is appropriate the company maintains a more conservative level of gearing. The Smiths City board has resolved to review the position during the 2018 calendar year.”
