'Challenging' market drags Dick Smith profit expectations down

'Disappointing' October sales figures and concerns over a 'challenging and competitive environment' have seen Dick Smith Holdings lower its 2016 profit expectations by up to $8 million.

The company had previously forecast net profit after tax for FY2016 of between $45 million to $48 million, but now says NPAT could be $5 million to $8 million below that previous guidance.

The lowered profit expectations come despite the company reporting a 6.9% increase in sales for the first quarter of 2016, with comp sales growth of 1.3%.

Nick Abboud, Dick Smith managing director and chief executive, says "Sales for the first quarter have improved on the prior year and last quarter, with New Zealand experiencing its best quarterly sales performance since acquisition.

However, the company says while sales results were improved across both Australia and New Zealand, gross profit was adversely affected by increased promotional activity and 'unfavourable product mix', with strong sales growth in unlocked phones and fitness, and disappointing sales in tablets, gaming and accessories.

Online sales growth was also offset by softer retail sales, impacting gross margins.

Abboud says despite increased promotional activity to stimulate sales and protect market share, October sales were 'disappointing'.

"Given the October performance and expectations of challenging and variable market conditions, we are cautious about the outlook for the all important Christmas trading period," he adds.