Warehouse has higher sales but lower margins

By Phil Boeyen, ShareChat Business News Editor

Friday 9th February 2001

The Warehouse (NZSE: WHS) has reported a strong increase in second quarter sales but says pressure on margins means its half-year profit won't match sales growth.

For the three months to the end of January sales at The Warehouse rose by more than 12% on the previous year to $553 million. The result includes a 14% hike in sales from the retailer's Australian operations, Clint's and Solly's, to $130 million.

The company says while early indications are that New Zealand earnings before interest and tax for the six months ended January should show a gain compared with the same period last year, it will not be at the same level as sales growth.

"Competitive pressure in the second quarter saw margins contract as retailers fought to capture sales in a diffident market, under pressure from higher interest rates and petrol prices, " the retailer says.

However it adds that a successful sell-through of seasonal merchandise, albeit at lower than ideal margins, has kept closing inventory in acceptable condition.

Excluding Clint's and Solly's, group same-store sales for the three months to the end of January were 1.7% ahead of the same quarter last year.

Year to date sales for the six months end January were $907 million, a jump of $112 million or 14.1% above the $795m achieved for the same period last year.

Sales at The Warehouse retail stores rose 10.5% over the same quarter in the previous year although same store sales only went up by 0.7%.

The company says this is a result of adding more nearly 6% more retail selling space during the quarter, with new stores suppressing same store sales.

"The new, larger format stores tend to attract shoppers away from existing stores as well as capturing a larger share of total retail spending."

However it says previous experience indicates that existing store sales recover relatively quickly and that the strategy of building new larger format stores continues to be the correct one.

In the last six months the chain has opened eight new red sheds, and at the end of January its retail chain consisted of 74 stores with almost 300,000 square metres of retail space - an increase of 19.3% over January 2000.

The company's Warehouse Stationery chain has also continued to grow to 32 stores, with around a third more total retail space than this time last year.

Sales for the stationery business were up 50% over the same period last year to $7.7 million, with same-store sales rising 24%.

Same-store sales comparisons for Clint's and Solly's have not been disclosed.

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