Smiths City to post big loss after 'unsustainable' price cutting by rivals
Christchurch-based furniture and appliance chain Smith City's recent warnings have proved true and it will post a loss that may be as high as $8 million.
The bad news comes as chairman Craig Boyce steps down after 30 years with the company.
Chief executive Roy Campbell blamed tough trading conditions in several persistently underperforming stores.
"We have to look at a couple of locations that have been challenging us. It's not news anyone wants to hear but we don't want to surprise the market more than have.
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"Although we saw some improvements in February and March, soft demand led to heavy discounting, often to unsustainable levels, and the expansion of interest-free credit terms to periods rarely seen in the industry.
"These trends were most pronounced in Christchurch, where we operate our largest outlets and generate a significant proportion of our total sales."
The loss is a major blow for Smiths which has been forced to shelve a planned special dividend to shareholders.
The annual report next month will reveal how affordable the policy is and whether Smiths will become a takeover target, especially for Sir Ron Brierley interests which own nearly 20 per cent of the company.
"Trading in November and January was very tough. It also reflects our rebranding of our Auckland stores which has taken us longer than we thought."
The final figures are yet to be revealed but sales were down to between $209m and $213m, compared with the $227.4m posted in 2017.
Trading losses will be between $1.25m and $1.75m, compared with $2m last year but the impairment (writing down in value) of leases of $4.8m will take the final loss to between $7m to $8m for the year ending April 2018.
Last year the company posted a final $2m profit.
The $4.8m lease write down was due to changing trading patterns, a shift in local conditions due to the opening of new retail hubs, and "onerous leases".
The result is still subject to April trading and the normal end-of-year review of the balance sheet.
"The disruptions to trading caused by the refurbishment and rebranding of the former Furniture City stores in Auckland and Whangarei and the closure of the Ngauranga Gorge store in Wellington in November have weighed heavily on the results.
"The rebranded Auckland stores, which reopened at the start of December, are not yet delivering to our expectations. Although we are making strong sales of appliances – a category previously not available in the former Furniture City stores – furniture sales are yet to recover to levels before the rebrand.
"This reflects a regional customer base that is still familiarising itself with the Smiths City brand as well as the broader market challenges.
"Three years ago, we started on a programme to transform Smiths City. This began with the closure of the Powerstore, Alectra and Furniture Concepts business units and the rationalisation of group distribution and administration centres."
Smiths had more recently rationalised stock made merchandising improvements, staff changes, and refurbished shops.
Campbell said the changes delivered positive results for many stores, but in a small number of locations they made little difference.
Meanwhile, Smiths has appointed independent director Alastair Kerr to replace retiring Craig Boyce at the end of May.
Independent director Gary Rohloff is also resigning at the end of April to spend more time on personal interests.
Boyce's tenure began as general manager in 1988 and became chief executive in 1990, overseeing the company's resurrection from receivership between 1990 and 1993. He held the post of chairman for 19 years.
In a statement, Boyce said Smiths City had been an important part of his life over three decades.
"Finding a successor was a key goal of the board refreshment programme we started last year.
"Alastair Kerr brings to the company a depth of international experience with industry giants such as Marks and Spencer, Mothercare, Virgin, The Body Shop, L'Oreal and Williams Sonoma.
"He also has strong experience as an independent director of Paper Plus Group, and veterinary group VetSouth."
Smiths was founded in Christchurch in 1918 and floated on the stock exchange in 1972. It operates 35 shops.