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CRASH! Why the Godfreys Group Ltd share price fell 15% today

The Godfreys Group Ltd (ASX: GFY) share price has been one of the worst-performers today after the release of a disappointing half-year result.

In early afternoon trade the shares of Australia’s largest speciality retailer of domestic and commercial floor care products are down 15% to 89.5 cents.

Key takeaways include:

  • Revenue from ordinary activities up 2.8% to $92.4 million.
  • Comparable store sales down by 7.0%.
  • Underlying EBITDA of $6.3 million, down 27.5%.
  • Underlying net profit after tax fell 47.8% to $2.35 million.
  • Statutory net loss after tax of $21.4 million due to a non-cash impairment charge of $24 million against goodwill.
  • Underlying earnings per share of 5.76 cents.
  • Unfranked interim dividend of 2.5 cents per share.

I can’t say I’m surprised to see the Godfreys share price plunge after this disappointing result. Although sales rose 2.8%, this was largely the result of a boost to sales from its acquisition of The Service Company.

The metric I feel investors should focus on today is its comparable store sales. These fell a worrying 7% compared to the prior corresponding period. Management has blamed this on the current trend for low price and low margin stick vacuums.

Unfortunately due to gaps in its existing product range the company expects trading conditions in the second-half to remain difficult.

Whilst management aims to fill these gaps, I’m not convinced that things will improve quickly enough for the company to meet its full-year EBITDA guidance of between $14 million and $15 million.

Because of this I think Godfreys is a share that investors should give a wide berth to today, despite how cheap it might look.

Instead, investors might be better served with an investment in retailers such as Premier Investments Limited (ASX: PMV) or Nick Scali Limited (ASX: NCK).

Godfreys isn't the only share I think investors should be careful with at the moment. These three rotten ASX shares look set for a tough 2017 as well. I believe this could lead to share price declines, so now might be a good time to sell them if you own them.

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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. 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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