Dick Smith released its first set of results to the ASX today under its new owners, with the company posting better than expected sales, earnings and profit figures.

Today’s figures come just over two years after the retailer was placed under a “formal review” by former parent company, Woolworths Limited. Then CEO of Woolworths, Grant O’Brien, said that Dick Smith had a “long tail of underperforming stores” and that the sector Dick Smith operated in was doing it tough, “undergoing significant change globally and experiencing a high level of price deflation”.

Yet today Dick Smith’s new owners, Anchorage Capital Partners, have shown that they have been able to turn the ailing retailer around to become a profitable enterprise. According to the company itself, this turnaround and today’s better than expected results have been driving by two key factors: the aggressive expansion of its store network and the increased ranging of private label products sold in those stores.

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Private Label Brands

At the opening of Dick Smith’s flagship Sydney CBD store in August last year, CEO Nick Abboud bullishly declared that the retailer would grow the percentage of private label, Dick Smith-branded product stocked in its stores, which then accounted for between 10 and 12 per cent of turnover.

“It’s important to be proud of our brand, and we want to move our brand up to 15 to 20 per cent over the next 5 years,” he said. “We’ve just opened up a sourcing office in Hong Kong where we procure that brand — all that has happened in the last 7 months — and we’ll bring in about $150 million worth of product through that sourcing office.”

Today, with Dick Smith seeing private label brands as one of the ‘four pillars’ of its growth strategy, the retailer is seeing the fruits of those labours.

“Dick Smith’s range of private label and global brands enabled us to achieve our sales expectations without compromising our gross margin,” said Abboud in today’s results release.

According to a presentation for investors, Dick Smith’s improvement in gross margin has come from “better sourcing and review of price points” which has in turn been “enabled” by the now established Hong Kong sourcing office. The brand has also declared that it will launch a further range of private label products within the next six months.

The retailer has already launched a range of Dick Smith-branded TVs in the New Zealand market, which came into Dick Smith stores “before Christmas” and the website is currently advertising competitive prices for these products, including $999 for a 55-inch Full HD LED LCD TV, and $249 for a 23.5-inch HD model.

Store Expansion

Dick Smith today announced that it opened 46 new stores in the first half of the financial year, primarily in the second quarter, including 15 Dick Smith stores, 30 David Jones Electronics powered by Dick Smith shopfronts and 1 Move concept store. The brand also plans to open 11 additional stores in the second half of the financial year — 7 Dick Smith stores, 1 in David Jones and 3 Move stores.

The major driver here has been Dick Smith’s “Retail Brand Management Agreement” (RBMA) with David Jones, first announced in August 2013. The partnership officially began on 1 October, and though Dick Smith has seen financial outlay with the investment in store refurbishment, rebranding and staff training, there is evidence that it has boosted the retailer’s overall performance.

Before listing on the ASX, Dick Smith released a ‘state of the union’ of sorts in the form of its business prospectus. In it, the retailer confirmed that sales for 1Q2014 had been $273.3 million and net profit after tax (NPAT) was $6.1 million. Today, final figures for the first half came through with $637 million in sales and $25 million in NPAT, meaning that 57 per cent of sales for the half were in Q2, along with 75 per cent of profits.

In August last year, Abboud said Dick Smith planned to grow its store network to 400 stores over 3 years, adding that owner Anchorage Capital Partners had committed “a large percentage” off its capital to new stores, with a road map of “20 to 25 stores a year”.

“We believe we can get the best return through the growth of new stores and we can fractionalise our costs at the same time,” he said. “All stores are profitable, which is great. We were very fortunate to pick up a store fleet that has investment already across 75 per cent of the footprint.”