Warehouse resisted margin squeeze as peak Christmas sales fell

-Paul McBeth

Tuesday 6th January 2009

Warehouse Group, the biggest retailer on the NZX 50 Index, said it maintained its margins as sales fell during the peak Christmas-New Year sales period. The stock climbed 2%.

Sales fell 2.5% in the 10 weeks ended Jan. 4 from the same period a year earlier, the Auckland-based company said in a statement today. Same-store sales declined 1.9%.

Managing director Ian Morrice said margins were "at levels similar to last year" as Warehouse cut costs and improved management of stock levels. First-half earnings before one-time items would be similar to the previous year's NZ$56.8 million even as the economy shrinks and the falling kiwi dollar drives up costs of imported goods. The shares have dropped 38% in the past 12 months.

"The whole retail sector looks difficult - I can't see how it will get spectacularly better in the short-term," said Alan Moore, who helps manage NZ$250 million at Milford Asset Management Ltd. Warehouse is typically more recession-proof than other retailers because its discount prices lure shoppers in hard times, "but these aren't normal times," he said.

New Zealand retail sales, excluding auto-related products, rose 0.8% in October, matching expectations, according to government figures last month. November sales figures are due on Jan. 21.

Separate figures yesterday showed consumer spending on credit and debit cards, excluding fuel and autos, fell 0.5% in November.

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 economy shrank in each of the first three quarters of 2008 and some economists predict the slump will extend into 2009 as companies eliminate jobs and property prices ease. Still, prices for fuel and food have eased, and credit costs are falling after the central bank embarked on its steepest easing cycle since introducing the official cash rate in 1999.

Morrice's earnings forecast excludes costs associated with the exit of its Warehouse Extra and Cellars brands, and electricity derivatives. Its stock rose 7 cents to NZ$3.55 today.

"We expect there will be further pressure on consumers and we will invest in maintaining our price leadership position to grow market share," Morrice said. "The outlook remains uncertain as overall consumer spending is expected to remain weak."

(Businesswire.co.nz)

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