Forum Archive Index - June 2003

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

Hi Shayne,

> 
> -The WHS has had one profit downgrade ever and it was due to its
> struggling Australian operations. Could this be any more of an
> indication of the problems they are having across the ditch??
>

'The fact'  that the Warehouse had two profit downgrades in a row, may 
have more to do with recent NZ legislative requirements for continuous 
disclosure than with a  particular problem with Australia.   Continuous 
disclosure requirements are a relatively recent phenomenon.

However, I dispute your 'fact'.    Part of the previous profit downgrade 
was due to the WHS lacking a product to sell in the electronic game 
market *in New Zealand*.    This was nothing whatever to do with 
Australia.    You may have noted that they have now fixed this problem 
and sell Xbox.

Also, some years earlier, WHS had a problem with their new computer 
system, which made  the tracking of exactly what was selling and 
consequently optimal re-ordering difficult.   This glitch was also 
overcome.

In short Shayne, I believe your assertion that the only profit downgrade 
WHS has ever had was due to its Australian operation is not correct.

Also the lack of continuous disclosure rules in previous years means 
that not all 'internal profit downgrades'  that were discussed at board 
level were announced to the market.



>
> -"Personally I don't see the Aussie expansion as being that far off
> track"...Please read the above again but this time, very carefully!
>



The fact that the WHS Australian operation was not going as well as 
they would have liked was no surprise to me.  The fact that they made 
two profit downgrades I don't believe means any more than that WHS 
are complying with the new continuous disclosure legislation.



>
> -Please tell me what other "growth engines" the WHS has that are as
> capital intensive as its Australian operations?? 
>



Any opening of a new store is capital intensive.    This is not particular to 
Australia.  

For someone who claims to follow the fundamentals, I am surprised you 
did not know that the problem the WHS has in Australia is high 
marketing costs ( TV and Newspaper ads cost far more there than over 
here) and the lack of the right product 'hook' to consistently get people 
to visit their stores week after week.     There is no problem at all with a 
lack of capital to develop Australia.   Indeed I believe WHS has paid at 
least one special dividend since the expansion into Australia was 
announced.   There would be no thoughts of paying a special dividend if 
the company was short of capital.    

No, the problem with Australia is that WHS have to get smarter with 
deploying the capital they have *already budgeted* towards that 
operation.   By changing the product mix and the marketing mix.



>
>-"Managements strengths" as an indicator of how great the WHS is?? 
> Yeah right, the CEO just resigned and he was seen by the market
>  as being amongst the top in NZ.
>  Why did Muir leave again?? Hang on, it wasn't fully
> disclosed! Why would that be?
>



Perhaps Muir has a sick child who has to be taken to the Auckland 
hospital for treatment twice a week.   Perhaps that meant he couldn't 
commit himself to being in Australia as often as the rest of the 
management team would like?

Of course I am making that up, but doing so to show you that just 
because the reason someone leaves a job is not fully disclosed does not 
automatically mean a company cover up.     Frankly, if Muir really does 
have a sick child and this contributed to his leaving it is none of our 
business, and it is the sort of personal detail that should not need to be 
disclosed!

Also I think you are placing far to much emphasis on CEO Muir.   He is 
only one member of the senior management team.    When I said 
'management strength' I was referring to the culture that built New 
Zealand's leading retailer from a couple of bargain bin sheds  twenty 
years ago.     I'm talking about layers of management with expertise in 
opening new businesses taking on the competition and whipping them.   
Muirs departure is a blow but hardly the 'down for the count jab' you are 
painting it to be.


>
> -I am a trend follower and study the
> fundamentals which therefore gives me an even greater perspective on
> how to view WHS shares. Why be one or the other when you can have the
> best of both worlds. -Based on the fundamentals of WHS, too many
> question marks over 
>1) Australian Operations 
>2) resignation of CEO 
>3) who will be the new CEO (stability factors, growth factors etc). 
>
>

By fundamentals I am talking about profit trends over ten years, ROE 
and proven ability to grow the business,  and the strong market position 
WHS has in its home base.

Warren Buffett once said that when you are investing in a business pick 
a business that is easy to understand and that any idiot can run.   
Because sooner or later any idiot *will* be running it!

In other words if Stephen Tindall announces that Donald Duck is to be 
his successor I would not care.   I have not invested in WHS because of 
any personality cult associated with its leader.

However, I do agree that there is a question mark hanging over WHS 
Australia.   So I can either: 

1/ Wait until it is resolved OR 
2/ Pay a price that is low enough so that is doesn't matter if WHS 
Australia is closed down and everything is lost.

I chose option 2


>
>-From a trend followers point of view, "what the???"
> . A close of $5.30 on
> Friday and for what reason other than supply and demand? 
>

No, the words I used were

"If you were simply a trend follower who didn't really
know what the underlying value of the Warehouse was,"

I wasn't belittling using trends.   I was belittling using trends AND 
NOTHING ELSE.

The fact that the closing share price on a particular day represents the 
meeting of an instantaneous supply and demand has no relevance to 
this discussion.
 
>
> ...you wouldn't catch me buying into WHS under any circumstances. >This stock 
>has been "infected" with the aussie bug, much like TEL was > a couple of years 
>ago. 
> And with the luxury of hindsight, this infection
> is far from over!
> 
> 

Obviously you own your own feelings on WHS.    Before I sign off 
however, I would like to pose this series of questions to you.    

1/Do you believe WHS was a good company before it went into 
Australia? 
2/ If so and given the fact that its New Zealand businesses that made it 
a good company are still intact, the New Zealand business must have 
some value.   What is that value?

If you really are a TA person *and* a fundamentalist,  you should at the 
very least be seeking an answer to that last question.     The fact that 
you stated that you would not buy into  the Warehouse at any price says 
to me that you are either unwilling or incapable of finding out its 
fundamental value.    If either one of those statements were true, that 
means you are not a fundamentalist at all in my books. 

SNOOPY




--
Message sent by Snoopy 
on Pegasus Mail version 4.02
----------------------------------
"Stay on the upside of the downside, 
Anticipate the anticipation!"




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