Dick Smith shares smashed in shock guidance downgrade
The share price plunge in Dick Smith shares today is what happens when you over promise and under deliver.
At the time of writing, shares in Dick Smith Holdings have been absolutely smashed in early trading, down by over 50% to 32c per share.
The cause? A review of inventory.
It sounds innocuous enough, but after the company’s annual general meeting at the back end of October the company decided, with external consultants, to complete an inventory review.
This is basically checking up on the level of inventory in its warehouses to track sales and potential future sales by applying sales models to the mix, while also making sure it has enough stock to cover the Christmas period.
The downgrade wasn’t exactly cause for joy for shareholders, and was led by an expected softer Christmas trading period.
However, it made this prediction, it seems, with a solid grasp on its expected inventory level.
The fact that it called in outside consultants to get a handle on the situation is admirable, but it really shouldn’t be needed.
While the review hasn’t wrapped up yet, the early results were enough for DSH to abandon its NPAT guidance and announce that a non-cash impairment of $60 million would be required.
“Given the non-cash write down and uncertain trading outlook, the company is unable to re-affirm the profit guidance previously given,” it said in an on-market statement.
Dick Smith Holdings did not give an expected NPAT guidance figure, leaving the market to speculate on the size of the damage.
It would appear in early trading that they have speculated by selling.
In business, the plan is usually to under promise and over deliver, dropping little hints along the way as to the true picture of the company.
The fact a company may make a profit should not be a surprise to shareholders, but the size of the profit should be a nice little upside.
However, it appears that DSH has done pretty much the exact opposite.
A further guidance update will be given in February next year, but there’s no telling at this stage where the bottom is and when bargain-hunters move in, stabilising the crash.