Why the Vita Group Limited share price is being hammered today

Vita Group Limited (ASX: VTG) has seen its share price plunge more than 10% in trading today to around $4.22.

And the reason why can simply be explained by a paragraph in Chairman Dick Simpson’s AGM Address.

“Last week we commenced a new venture that enables us to capitalise on our retail core competencies and sits firmly within our criteria for growth. We opened our flagship store for SQD Athletica ( at Pacific Fair on the Gold Coast. We also opened a pop up store in Carindale in Brisbane. SQD Athletica is a unique, men’s lifestyle brand – refining style and inspiring men to find balance and to be ‘fit for life’. The core range includes active apparel, lifestyle accessories, eyewear and skincare.”

What may also have shocked investors that there was no forewarning that the company was going into this new market segment.

This is the first time shareholders have officially become aware that Vita Group was going to expand into other retail sectors. Despite an announcement on the company’s website on October 24, nothing was released to the ASX until the AGM on October 28. The SQD Athletica Instagram page was setup nine weeks ago too.

Moving from running retail stores and business centres for Telstra Corporation Ltd (ASX: TLS) to men’s lifestyle retailing is also a big jump. Success in retailing phones and mobile plans doesn’t necessarily translate into instant success in another retail sector.

There’s no doubt that CEO Maxine Horne has done a remarkable job with Vita Group over the past few years. Exiting its troubled Nextbyte stores, simplifying Fone Zone and One Zero brands and increasing its Telstra retail store network. That has seen earnings grow strongly over the past six years.

Shareholders may need to give the company some time for the move to work out, and it’s clear that Miss Horne has sufficient retailing skills to pull this off.

But investors may also be concerned Miss Horne sold 10 million shares worth $49.5 million in late September – around the same time that SQD Athletica was setup. I’m not suggesting anything improper has occurred, but the timing was dreadful.

Investors don’t like surprises – hence the reason Vita Group’s share price is being hammered today.

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Motley Fool writer/analyst Mike King owns shares in Vita Group. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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