Shares of Dick Smith Holdings Ltd (ASX: DSH) have been hammered today despite a rather optimistic half-year profit report. The stock traded as much as 9.3% lower for the day, hitting a low of $2.04.
So What: It seems that investors are focused on Dick Smith Holdings' net profit, which rose just 0.8% during the period to $25.2 million. What they don't appear to be taking into account is the 2% growth in same-store sales as well as an 8.9% increase in overall sales to $693.8 million, driven partially by the opening of 11 new stores during the half.
The strong sales growth came despite challenging market conditions and volatile consumer confidence. The company said that this momentum had carried forward into the second half with January sales up over 17%, while February sales are also experiencing double-digit growth. Sales for the full-year should increase by around 10%.
While the company has forecast profit growth of between 3-5% for the full-year, it said this target was cautious given the strong start to the second half, the planned opening of nine more stores as well as the possibility of an improvement in New Zealand. Furthermore, the falling interest rate environment should also help boost sales in Australia, too.
Dick Smith Holdings announced a fully franked interim dividend of 7 cents per share, which is payable on 30 April 2015.
Now What: Despite the headwinds facing the retail industry, Dick Smith Holdings actually presents as a reasonable investment prospect. It has decent growth potential (it plans to have 400 stores by the end of June, and 450 stores by 2017) and could grow earnings at a decent clip over the next couple of years.
Investors may also want to compare its prospects to rival JB Hi-Fi Limited (ASX: JBH). It also boasts decent growth prospects and offers a very compelling dividend yield of 5.1%, fully franked.
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