Woolworths to close over half Dick Smith stores: analysts

Analysts are tipping Woolworths will close up to 189 of 386 Dick Smith stores and develop an online strategy as the brand struggles against lower consumer spending and rival JB HiFi.

A report published by CLSA analysts David Thomas and Richard Barwick predicts Woolworths will either “shrink and trim” its Dick Smith operation or sell the brand entirely, following a period of lacklustre sales which in November saw CEO Grant O’Brien signal a strategic review into the underperforming business.

Dick Smith stores across Australia and New Zealand reported a 14.9 percent drop in earnings before interest in the 2011 financial year. The consumer electronics chain has suffered a steady decline in sales since FY2007, dropping from $71.1 million earnings before interest to just $22 million last year. Main rival JB HiFi’s sales grew from $65.5m in the same period to $196 million in FY2011.

Q2 2012 figures are due to be released on 31 January and results from the strategic review will be made public in early February.

Thomas and Barwick predict declining consumer spending will force Woolworths to launch an online Dick Smith operation in order to increase profitability and eventually sell off the brand. The report names Retravision, Betta and The Good Guys as potential buyers. 

“We believe the Dick Smith business can be considered ‘up for sale’ following the announcement by WOW at its strategy day in early October [2011] that the Dick Smith business was formally under strategic review,” the report states. “The divestment of Dick Smith is not the only alternative being considered but given the weak earnings performance of the business we believe Woolworths is unlikely to continue with Dick Smith in its current size and shape.”

“Given the large store base and low level of earnings, it is reasonable to expect the Dick Smith chain to include a long tail of loss making stores.”

Woolworths did not respond to requests for comment by the time of publication.