Posted November 30, 2015 13:41:23

Shares in electronics retailer Dick Smith have crashed by as considerably as 69 per cent after the firm shocked investors with a $ 60 million earnings impairment.

In a statement released to the ASX, Dick Smith said November trading was below expectations and the company’s stock holdings remained above management’s preferred levels.

“We stay cautious, on the outlook for the Christmas trading period,” Dick Smith managing director and CEO Nick Abboud stated.

“We will continue to drive sales, preserving flexibility on gross margin to reduce inventory and improve our net debt position.”

The firm also mentioned it was unable to reaffirm its earlier profit guidance.

In October, Dick Smith stated it anticipated income would be $ 5 million to $ eight million reduce than its previous guidance of $ 45 million to $ 48 million.

Forager Fund Management chief investment officer Steve Johnson said the business was looking problematic for investors.

“You would appear at it and say it does not have a lot of debt but it does have commitments to spend a lot of rent and that can be a extremely large dilemma,” he said.

“I would guess from today’s announcement that it will be loss-producing rather than profitable at all.”

JB Hi-Fi a powerful rival

In 2012, private equity firm Anchorage bought Dick Smith from Woolworths for $ 94 million.

A year later, the business floated on the stock marketplace at $ 2.20 per share, making its industry value $ 525 million, a gain of practically 500 per cent.

“It is basically reverting back to its former self and … there is an argument to be produced that it was possibly in no way generating any genuine profits, but was temporarily dressed up by private equity to be able to sell it to the marketplace,” Mr Johnson mentioned.

Mr Johnson said it was likely Dick Smith would begin to close shops as its principal rival JB Hi-Fi takes far more of its industry share.

“I consider if something, this has just highlighted some of JB Hi-Fi’s competitive advantages and how entrenched it is in consumer’s minds,” he stated.

“They’ve got a broader mix of goods, they’ve got a significantly decrease cost of performing company, it is a far more eye-catching spot to go and shop.”

Subjects: enterprise-economics-and-finance, retail, australia

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