Warehouse knocked by Aussie acquisition

By Phil Boeyen, ShareChat Business News Editor

Friday 27th April 2001

Inventory problems in Australia, and the tough retail environment there, have forced The Warehouse (NZSE: WHS) to lower full-year profit forecasts.

The profit warning is a result of lower-than-expected sales at the company's new Australian chain, Clint's Crazy Bargains, which was acquired last year.

WHS chairman, Keith Smith, says shareholders have been told that trading at Clint's in March and April has deteriorated due to the continued weak retail environment and a fall in gross margins.

"Sales and gross margins are significantly below plan owing to unsatisfactory inventory management and other integration issues.

"The weak Australian dollar is compounding margin pressure as a significant portion of Clint's merchandise is imported. There seems little prospect of an improvement in the general Australian economic environment in the near future."

Mr Smith says the company has decided to clear slow-moving inventory from the Australian business, which will have a negative effect on short-term reported earnings.

"Our revised forecast for Clint's is that it will not produce any positive Ebit contribution this financial year against previous expectations of an Ebit contribution of A$8 million.

Mr Smith says another factor which will impact on the final year result is the exercise of options by staff, which has resulted in a one-off reported expense of $2.2 million.

The expense has been caused by the difference between the corporate tax rate and the top marginal tax rate.

"It should be noted that from the company's point of view, this charge is compensated for by a reduction in the number of shares that the company would have been obliged to issue under the scheme, had personal tax rates not been increased."

The company says while The Warehouse and Warehouse Stationery businesses continue to perform solidly, the weak trading result from Clints and the options tax charge now suggests that current market net profit forecasts are around 15% too high.

The group is due to release its third quarter sales, for the three months ended April, at the end of next week.

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