Greencross issues earnings warning, shares smashed ahead of major internal review

Greencross (ASX: GXL) has cut its earnings forecast ahead of a company-wide review into its operational structure.

In February, the national vet care provider and animal goods retailer affirmed a market consensus that its earnings before interest, tax, depreciation and amortisation (EBITDA) would hit $108 million at the full year.

Greencross now expects to deliver an underlying EBITDA of between $97-100 million.

The update sent GXL shares into freefall during early trade on Wednesday, with company stock diving more than 19 per cent to hit a five-year low of $4.40.

Greencross has also  warned shareholders of a $16-20 million hit from non-cash impairments following a review into its annual operating expenses.

The company aims to cut its yearly costs by $10-13 million by improving its back-office efficiencies, rebalancing rosters, reducing utility costs through new tech and tightening its professional fee discounting policies in its veterinary division.

CEO Simon Hickey says the review will be completed and implemented by 1 July 2018.

"The company is taking immediate and decisive action to reset its cost base," he says.

"I am confident that, following this review, Greencross remains well placed to successfully execute our integrated petcare strategy, selectively invest in growth opportunities and deliver improved profitability for our shareholders."

Since its 1H18 update in February, Greencross has achieved like for like sales growth of 4.5 per cent.

Sales across its veterinary business increased by 4.9 per cent while its retail division, which includes the Petbarn and City Farmers brands, grew by 4.3 per cent.

Hickey says the company needs to backtrack on its goal to change the physical layout of its stores and instead focus on a less expensive way to improve its existing business.

"Given the structural changes in the pet sector, we need to review our previous capital-intensive model of renewing the physical layout of stores and clinics and instead focus on customer centricity and profitability of the existing fleet," he says.

"We will continue to backfill veterinary and other services into retail stores in strong catchments However, going forward our immediate focus will shift more towards integrating technology into our existing offering."

While he admitted Greencross' current financial outlook leaves shareholders wanting, Hickey says the company's refreshed strategy should support long term growth.

"While today's announcement is obviously disappointing for the company and its shareholders, I firmly believe that Greencross' portfolio of retail stores, veterinary clinics and grooming salons together with our omnichannel business platform means we are uniquely positioned to deliver long term growth."