Dusk (ASX:DSK) share price slides as 5,483 trading days get smoked

Store closures and Omicron fears burn the candle at both ends for Dusk in the first half…

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Key points

  • The Dusk share price is moving to the downside as shareholders digest its trading update
  • Company sales take a hit in the first half due to store closures and customer caution around COVID-19
  • Eroma acquisition looks set to be finalised in February

The Dusk Group Ltd (ASX: DSK) share price is under pressure on Monday morning following the release of a trading update.

In morning trade, shares in the home fragrance specialty retailer are trading at $2.74, down 2.8%.

Dusk share price takes a ride to the downside on lower sales

Shareholders are disappointed this morning as Dusk reveals the extent of challenges experienced in the first half of FY22. Here are some key highlights from the update:

  • Sales fall 12% to $80 million compared to $90.9 million in prior corresponding period
  • Like for like sales decrease 10.1% as Dusk cycles strong comparables
  • Pro forma earnings before interest and tax (EBIT) expected to be between $21 million and $21.5 million
  • Store network expands by 6 to finish the half at 128 stores
  • Online sales increase 4.3%, now making up nearly a tenth of total sales
  • Net cash at the end of the period was $33 million

What else happened in the first half?

It was a challenging period for Dusk in the 26 weeks ending 26 December 2021. The company’s difficulty primarily stemmed from government-mandated store closures across New South Wales, Victoria, and the ACT.

According to the release, the mandated closures resulted in Dusk’s store trading days taking a 24% hit — equating to 5,483 days lost. On top of this, foot traffic to Dusk stores remained impacted upon reopening as people exercised caution with the Omicron variant.

Another notable event during the half-year period included Dusk acquiring Eroma Group. Upon announcing the acquisition in December last year, the Dusk share price jumped more than 5%.

The deal struck with the supplier of candle-making materials for $28 million is now expected to be completed around 28 February 2022. Dusk stated, it foresees Eroma being a strong contributor to earnings per share (EPS) in its first year of ownership.

What did management say?

Commenting on the trading update, Dusk CEO Peter King said:

Given the circumstances faced during the half, there is much to be pleased about in the overall result delivered, especially having regard to the fact we cycled exceptional LFL sales growth from the prior corresponding period. We remain focused on our customer and strategic priorities, and have made tangible progress on our growth strategies, including continued store roll out in Australia, preparing to commence operating in New Zealand, and the acquisition of Eroma.

What’s next?

From here, Dusk will be working closely with suppliers and logistics partners as supply chain issues linger. Additionally, the company stated it held $19.6 million in inventory at the end of the half. This reflects an increase from the $18.7 million in the prior corresponding period.

Undoubtedly, shareholders will be watching Dusk for how it manages elevated operations costs. For example, increased occupancy costs, higher salaries, and warehouse costs.

However, there were no details pertaining to operational costs in today’s first-half trading update.

Dusk share price snapshot

Since listing on the ASX in the latter half of 2022, Dusk has performed exceptionally well. Investors who held on to the company’s shares during this time are sitting on a 59% return before dividends.

Although, on a more recent timeline, it has been a rough patch for the Dusk share price. In the past 6 months, the candle retailer has suffered a 24% selloff. Meanwhile, the S&P/ASX 200 Index (ASX: XJO) has managed to only lose 3.6% during the same time.

Finally, Dusk currently holds a market capitalisation of $170 million.

Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Dusk Group 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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