Tough conditions, impairments, push retailer back into red

FURNITURE and appliance retailer Smiths City is about to plunge back into the red again as it reports tough trading conditions, coupled with impairments of leases on persistently underperforming stalls.

Chief executive Roy Campbell said in a statement to the NZX the Christchurchbased but national retailer would make a loss of $7 million to $8 million for the year to April 28 compared to a profit of $2.4 million in the 2017 financial year.

Smiths City has only recently started paying tax after claiming accumulated tax losses from the near collapse of the company two decades earlier.

The company now expected revenue for the year to range between $209 million and $213 million, compared to the $227 million reported in the previous corresponding period.

Trading losses for the year were expected to range between $1.25 million and $1.75 millon, compared to a trading profit of $2 million in the pcp.

In addition to the trading losses, Smiths City expected to make an impairment provision of $4.8 million relating to the leases on stores consistently underperforming, Mr Campbell said.

Factors causing the underperformance included changing trading patterns, a shift in local conditions due to the opening of new retail hubs and onerous leases.

‘‘Despite a successful Christmas trading period, demand for our core categories was weak in November and January.

‘‘Although we saw some improvements in February and March, this soft demand has led to heavy discounting, often to unsustainable levels, and the expansion of interestfree credit terms to periods rarely seen in the industry.’’

Those trends were most pronounced in Christchurch, where the company operated its largest outlets and generated a significant proportion of total sales, he said.

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, had weighed heavily on the results.

The rebranded Auckland stores, which opened at the start of December, were not yet delivering to expectations, Mr Campbell said.

Although Smiths was making strong sales of appliances — a category previously not available in former Furniture City stores — furniture sales were yet to recover to levels before the rebrand.

Mr Campbell believed lower furniture sales reflected a regional customer base still familiarising itself with the Smiths City brand, as well as the broader market challenges.

Three years ago, the company embarked on a programme to transform Smiths City. It started with the closure of the Powerstore, Alectra and Furniture Concepts business units and the rationalisation of group distribution and administration centres.

The retailer had more recently moved to a programme of stock rationalising and refreshment, merchandising improvements, staff changes and trading store refurbishments.

While those changes had delivered positive results for many of the stores, in a small number of locations they had made little difference to sales, Mr Campbell said.

‘‘It has now become apparent that, despite our best efforts, these locations are now likely to remain lossmaking through to the end of the current lease periods.

‘‘Considering these judgements, Smiths City now believes it is appropriate the impairments are recognised in the results for the year to April.’’

Smiths City was determined to invest and grow in markets offering the strongest opportunities, including Auckland and the upper North Island, Mr Campbell said.

‘‘Our success ultimately depends on the Smiths City brand being synonymous with great value, a superb customer instore experience and excellent customer fulfilment.

‘‘We are working constantly to deliver on this goal.’’