The Bull

Wednesday 26

September, 2018 9:31 AM



New TV ads suck more sales out of Godfreys

New TV ads suck more sales out of Godfreys

Godfreys has cut its full-year earnings guidance for the second time in two weeks after new TV ads hit rather than increased sales.

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By AAP 09.05.2018 03:18 PM

Godfreys is blaming its TV ads for a big dive in sales that has forced the vacuum cleaner retailer to cut its full-year earnings guidance for the second time in two weeks.

The retailer has warned it is likely to breach loan covenants after like-for-like sales for the past two weeks were 27 per cent lower than the same time last year.

Godfreys on Wednesday downgraded guidance for earnings before interest, tax, depreciation and amortisation from the lower end of its $5 million-$6 million range to $3.5 million.

Like-for-like sales for 2018 so far are 7.8 per cent lower than at the same time last year, the company said.

Godfreys, whose board on Wednesday recommended a takeover bid by 99-year-old co-founder John Johnston, blamed the latest fall in sales on changes to its ad campaigns that focused on product benefits rather than discounts and sales.

The latest ads were a far cry from those from the 1990s, when then boss John Hardy famously demonstrated the strength of a vacuum cleaner by sucking up a 16-pound (7.3kg) bowling ball.

"These changes have not resonated with Godfreys existing customer base and as such the company has reverted to the previous television advertising approach for this segment of the market," Godfreys said.

"Godfreys will continue to test refinements to the product feature and benefits approach through digital channels to target a broader customer base that the company is currently not attracting."

Despite concerns about breaching loan covenants due to the earnings decline, the company said its lender will waive its rights should the breach occur as long as the two parties begin negotiations this week about reducing the debt.

Since listing in 2014 at $2.75, the nation's largest floorcare retailer has suffered falling sales, multiple changes of senior management, and a sustained slide in share price.

Mr Johnston has increased his stake in the company since launching his takeover bid - with Godfreys informing the ASX on Wednesday he now holds 29.2 per cent of stock, up from 28.1 per cent when the offer was made in April.

His Arcade Investments has offered all other investors 32 cents per share, valuing the chain's market value at $13.1 million.

Godfreys shares were steady at 30 cents at 1517 AEST.

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