MENU

Dick Smith set to expand

Consumers could soon see more Dick Smith Electronics stores, if new owner Anchorage Capital has its way.

Anchorage bought the Dick Smith Electronic stores from Woolworths Limited (ASX: WOW) for $20 million earlier this year, as the supermarket retailer looked to get out of the struggling consumer electronics space.

Competition in the sector is fierce, with JB Hi-Fi Limited (ASX: JBH), Harvey Norman Holdings (ASX: HVN) and Dick Smith battling not just amongst themselves, but a multitude of online retailers, both in Australia and offshore. To make matters worse, the industry is experiencing a structural change with music, DVDs and games moving online. Combined with global price differentiation – where suppliers and manufacturers charge different retailers a range of prices – and the high Australian dollar – which makes it more attractive for consumers to shop offshore, and you can see why the industry is struggling.

Anchorage Capital chairman Phil Cave has told the Australian Financial Review (AFR) that the group plans to adjust Dick Smith’s range and open new stores, despite no sign of an improvement for the consumer electronics store. Mr Cave told the AFR that “It’s like any industry – we have interests in steel, but our steel business is doing very well”.

Woolworths closed up to 100 stores and restructured others as part of plans to turn around the struggling business, out of a total of 390. The company also wrote down the total value of Dick Smith in its books and took a $300 million provision in the first half of 2012, and a $120 million in the second half.

Foolish takeaway

Whether Anchorage can turn Dick Smith around, whilst also expanding the business and keep it profitable remains to be seen. Still, private equity groups specialise in turning around failing or fallen businesses, and we may yet see a revitalised Dick Smith taking it to Harvey Norman and JB Hi-Fi, as well as Officeworks – owned by Wesfarmers Limited (ASX: WES).

If you only invest in one company this year, make it our “Top Stock for 2012-13”. Operating in two hot markets — one set to double by 2012, the other predicted to grow 5x over the next five years — this stock is a solid growth play that also boasts strong recurring revenue, zero debt, and lots of cash. Get its name and full research case in this brand-new FREE report.

More reading

Motley Fool writer/analyst Mike King owns shares in JB Hi-Fi and Woolworths.  The Motley Fool ’s purpose is to help the world invest, better.  Take Stock  is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  Click here now  to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.