Dick Smith's NZ 1H sales fall, margins shrink in competitive market

Dick Smith Holdings, the Australian consumer electronics chain, said its New Zealand unit's margins shrank and sales fell in a competitive market and a deterioration in consumer sentiment.

Profit for the New Zealand unit more than trebled to A$952,000 in the 26 weeks ended Dec. 28, from A$250,000 a year earlier, the Sydney-based company said in a statement. Sales fell 9.3 percent to A$87.7 million, while earnings before interest, tax, depreciation and amortisation fell 52 percent to A$2.5 million.

Local bricks-and-mortar retailers have been forced to shrink margins and offer discounts in a bid to compete with online retailers, who have fewer overheads and are able to offer attractive bargains to shoppers. Compounding that, New Zealand consumer confidence fell to its lowest level in over a year in the last three months of 2014, according to the Westpac McDermott Miller Consumer Confidence Index, as falling global dairy prices weighed on optimism about the outlook for New Zealand's economy.

Over the six month period, Dick Smith's Ebitda margin for the New Zealand unit shrank to 2.9 percent from 5.6 percent a year earlier, as sales were "impacted by aggressive competitive pricing and a deterioration in consumer sentiment, particularly in the second quarter," the company said in a statement. Dick Smith expected challenging conditions to continue, and forecast a medium to longer-term turn around but said it was well positioned for recovery as the local market improves.

The company's comments echo rival JB Hi Fi's assessment of the New Zealand market. The discount consumer electronics chain reported a 4.3 percent fall in first-half sales at its New Zealand unit.

Dick Smith said group profit increased 0.8 percent to A$25.2 million in the period, while sales rose 8.9 percent to A$693.8 million. Its core Australian business posted a 122 percent jump in profit to A$24.3 million, while sales rose 12 percent to A$606.1 million.

Dick Smith, which debuted on the ASX at the end of 2013, is aiming for 450 stores over the next two years, as it implements its growth strategy to secure its foothold in the "increasingly competitive" Australian market.

January sales are up 17 percent, with total sales growth for the year now exceeding 10 percent. Dick Smith expected annual sales to increase around 20 percent, with comparative sales growth up 3 percent it said.

Shares of the company last traded at A$2.25, ahead of its $2.20 offer price, and have gained 7.7 percent since the start of the year.