Smiths City's Boyce says household budgets 'under pressure'

Friday 27th June 2008

Household budgets in New Zealand are under "extra pressure" as costs rise, said retailer Smiths City Group, which posted a decline in annual profit.

Profit in the 12 months ended in April fell 1.7% to NZ$3.56 million, the department store operator said in a statement. Same-store sales fell 2.2%.

"Given these very difficult trading conditions, a profit result basically in line with last year is considered satisfactory," said chairman Craig Boyce.

"Household budgets have come under extra pressure from continually increasing costs of food, electricity, petrol and interest," Boyce said. "Big ticket products are among the first items to be cut" from households' discretionary spending, he said.

Figures today showed the economy contracted 0.3% in the first quarter, as predicted by economists.

Smiths City says it will reduce costs across the group from rationalising systems after buying the 20% stake of electronics retailer LV Martin it didn't already own.

The company has slashed prices of goods to stoke sales. It says competition is keeping margins slim.

"To maintain market share we have matched, and in some cases beaten, very competitive offers in the marketplace," said managing director Rick Hellings. Its Smiths City and Powerstore outlets have "performed well" in a difficult market while competition for appliance sales has eroded LV Martin's margin and profitability.

Smiths City shares haven't traded today and are offered at 40 cents, near a record low. Other retailers dropped.

Warehouse fell about 8% to NZ$4.15 after cutting its full-year profit forecast by about 10%. Briscoe Group fell 9.1% to a record-low 90 cents after its second forecast cut in two months.

Hellings was gloomy on the immediate outlook.

"Whilst tax cuts and a strong rural economy would ordinarily be in our favour this government appears determined to control inflation through stifling any growth in consumer spending," he said. "We are unlikely to see growth in demand."

By Jonathan Underhill

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