Godfreys slides, signals no earnings change

godfreysStruggling vacuum specialist Godfreys has narrowly avoided missing its downgraded guidance, signalling that it expects no material improvement in earnings through FY18.

Godfreys booked earnings before interest, tax, depreciation and amortisation (EBITDA) of $14.1 million for the year ended 30 June, down 19.8 per cent on FY16 and just within its $14 – 15 million guidance, downgraded in May.

Total revenue declined 2.9 per cent to $174.1 million, while comparable store sales were down seven per cent, as managing director John Hardy progresses his strategy of converting an increasing proportion of the company’s store portfolio to a franchise operation.

A further 22 stores were given to franchisees through the year, bringing the size of the network to 45 per cent of the 222-store portfolio.

But the initial fees associated with the shift, which has added $5.3 million to the books, is expected to tail off in FY18 as less stores are converted, prompting an expectation that earnings will be at “similar levels”, with a different composition.

A net profit after tax of $5.9 million was booked, excluding a $24 million non-cash goodwill impairment announced in the first half as a re-evaluation of intangible assets.

Following the announcement of a $30 million debt facility linked to substantial shareholder Arcade Finance, announced in May, Godfreys reported a $5.1m  reduction in net debt to $16.5m.

“In 2017, we introduced a number of new products, including a range of stick vacs and an expanded range of commercial products, refreshed our retail staff training program and incentive structures, enhanced the efficiency and effectiveness of our advertising and introduced ‘click and collect’,” Hardy said.

Hardy, who was brought back into the business after years away in 2016, reckons there’s reason to be optimistic about its future growth prospects, noting that stores converted to franchise arrangements had experienced improved sales performance.

Sales stabilised during the second half as more stores were converted, with Hardy signalling an “improvement” in the June quarter.

Operating cashflow increased to $11.3 million from $6.7 million last year, on working capital efficiencies that the company intends to continue during FY18, while also focusing on further reducing debt.

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