Warehouse profit falls on Extra exit

Thursday 12th March 2009

Warehouse Group, the biggest retailer on the NZX 50 Index, posted a 24% drop in first-half profit reflecting costs to decommission its Extra hypermarket stores after the company abandoned its foray into fresh food.

Net income fell to $49 million, or 15.9 cents a share in the six months ended Jan. 25, from $64.3 million, or 20.8 cents, a year earlier, the Auckland-based company said in a statement. Sales fell 2.9% to $923.5 million.

The retailer, whose shares have fallen 44% in the past 12 months, has trimmed costs and improved stock handling as the recession bites into consumer spending. In the first half, the company widened its operating margin to 9.1% from 8.8% and held its dividend payment at 15.5 cents a share, unchanged from a year earlier.

"Changes we've made in response to the economic downturn have been effective in enabling us to compete vigorously and improve our market share position whilst maintaining margins," said chief executive Ian Morrice.

Still, "so long as the prospect of higher unemployment and low consumer confidence remains, the retail environment will continue to be challenging," he said.

The company forecast earnings growth will stall in the full-year, with adjusted net profit similar to last year's $80.9 million.

The Reserve Bank today forecast the jobless rate will reach 5.2% this year and peak at 6.8% in early 2010. That's lower than some economists' predictions, which saw unemployment reaching 7% this year.

Governor Alan Bollard cut the official cash rate by 50 basis points to 3% as expected while signaling the end to the steep easing cycle as the economy troughs through the middle of the year.

Interest rates are now at "very stimulatory levels," he said in Wellington today.

The operating profit at the retailer's Red Shed department stores rose 2.3% to $81.2 million, even as sales slipped 2.2%. The company said its exit from groceries and liquor had a positive impact on gross margins.

Warehouse Stationery operating profit tumbled 52% to $1.3 million as sales declined 8.4%. The economic downturn was "significantly impacting" the office products market, the company said. The benefits of a cost-reduction program will show up in the second half.

The results included $10.7 million of costs to exit the Extra stores.

Warehouse last year abandoned its strategy of expanding into groceries with so-called hypermarkets and is withdrawing from liquor sales. The retailer is a potential takeover target from Foodstuffs and Woolworths, which dominate the supermarket sector and each own a 10% stake.

The shares were unchanged at $3.52.

By Jonathan Underhill

Comments from our readers

No comments yet