Why the Vita (ASX:VTG) share price is crashing 31% lower today

The Vita Group Limited (ASX:VTG) share price is crashing lower after being dealt a huge blow by Telstra Corporation Ltd (ASX:TLS)…

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The Vita Group Limited (ASX: VTG) share price is crashing lower on Thursday after being dealt a huge blow.

At the time of writing, the retailer’s shares are down 31% to 77 cents.

Why is the Vita share price crashing lower?

Investors have been selling Vita shares this morning following the release of the Telstra Corporation Ltd (ASX: TLS) half year result. You can read more about that here.

In case you’re not aware, Vita operates a total of 104 Telstra retail stores on behalf of the telco giant.

However, this morning Telstra has announced plans to transition to full ownership for all of its branded retail stores across Australia.

This will be a huge blow for Vita. Although it has been trying to diversify in recent years, almost the entirety of its revenue is still generated by its Telstra stores.

For example, in FY 2020, the company’s Information & Communication Technology (ICT) segment reported $752 million of revenue. This represents a whopping 97.3% of its total revenue.

When will the contract end?

According to an announcement by Vita, it expects its current dealer agreement with Telstra to end on 30 June 2025.

This gives the company a little over four years to find a way to recoup the enormous gap in its earnings that this will cause.

Vita’s Chief Executive Officer, Maxine Horne, commented: “Vita is strategically prepared for a range of outcomes and has been investing in the very attractive category of skin health and wellness for some time, thus creating a new growth opportunity for the group.”

“We have a 26-year partnership with Telstra and are committed to working professionally with them to ensure the best possible outcome for all parties. In addition to discussions with Telstra regarding transition arrangements, the remaining period of the Telstra licence arrangement will provide cashflow as we continue to grow the Artisan brand,” she concluded.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited. 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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