It's good to consider the potential upside of the situation here, but when your negotiating with a behemoth like TLS - remember that the advantage doesn't just marginally lie on the Telstra side... it is almost entirely with them. Telstra has the brand name and they already have the expertise and the experience in running profitable stores, so why do they really need VTG at all?
It really is a masterclass, yet obvious move, by Telstra and unbelievable to look back at some of the comments made by analysts and overly optimistic fund managers over the years who extrapolated the success of the ramp up phase of Vita.
Even if Vita manages to remain a profitable entity with the proposed (or similar) agreement, what is clear is that any existing growth paths have been decimated. More likely, is that the company will be looking at cutting out the stores which are not as profitable in attempts to be more efficient with higher sales at the already better performing stores. This would be a rational response to the remuneration changes, in my opinion. Then in 2020 when Telstra has the option to renew the contract, they are going to have a store network with all of the fat chopped out of it which looks much more profitable - what would be the logical decision then?
Anyone hanging their hat on thoughts about the company pursuing growth through other ventures might not want to get overly excited based on past precedent with NextByte etc.
VTG Price at posting:
99.0¢ Sentiment: Sell Disclosure: Not Held
