The Warehouse adjusts to lower CD and DVD sales

Friday 11th March 2011 1 Comment

The Warehouse Group said lower sales of CDs and DVDs are an issue for it but it is increasing sales in a range of other categories.

The discount retailer today reported adjusted net profit after tax fell 7.1% to $53 million in the six months to January 31 from a year earlier and operating profit fell 5.2% to $78.9 million.

Same-store sales fell 1.2% to $908 million. Earnings before interest, tax, depreciation and amortisation fell 4.5% to $99.1 million. The reported net profit after tax fell 8.9% to $52.3 million. The interim dividend was held at 15.5 cents per share.

Departing group chief executive Ian Morrice said the sales decline was due to a contraction in sales of CDs and DVDs and price deflation due to better buying and a higher New Zealand dollar.

The company had to "move more boxes to make more sales" as the price of products fell.

Despite higher discounting profit margins were in line with last year.

"It would be fair to say the business model requires sales. Sales and margins are the most important thing for the business," he said.

The company experienced transaction growth in the half and unit volumes rose.

"Whilst we are disappointed at the sales drop - we had planned on sales growth and had indeed bought for sales growth - but we are nevertheless still encouraged by a number of categories that continue to perform well," he said.

Sales of sporting good rose 4.6%, home appliances rose 4 percent, housewares rose 2.5% and furniture rose 9%.

The company had to deal with the issue of a continuing decline in sales of CDs and DVDs but the decline needed to be viewed in the context of sales in other categories, he said.

A breakdown showed that Warehouse Stationery increased its operating profit by 21.7%, while other group operations reported a 20% fall in profit.

The company was expecting trading conditions to be challenging for the remainder of the year.

It was forecasting a net profit of between $76 million and $80 million for full-year, up from $83m in the previous year.

The Reserve Bank of New Zealand cut the official cash rate (OCR) to 2.5% from 3% this week to stimulate the economy in the wake of the Christchurch earthquake.

"The OCR cut yesterday may help sentiment in the broader context but for consumers it is really about the impact we are seeing from increased fuel, increased food prices and increased household bills.

"We don't see a significant catalyst to change that in coming months," Morrice said.

He said the company was fully insured for the impact of earthquake.

It remained to be seen how the earthquake would affect consumer sentiment "if at all", he said.

Stocks were in good shape.

The Warehouse's shares were up a cent at $3.43 in afternoon trading.

NZPA

Comments from our readers

On 15 March 2011 at 12:15 pm A Shareholder said:

The real reason/s for falling sales have not been identified by the company's management. It has "over-focused" on reducing costs to allow discount pricing to the exclusion of the downside to same i.e. losing customers, and not recognizing the importance of repeat business, through stocking poor quality goods. For example, several years ago I bought two pairs of men's business-type shows (brand Boston?). The heels fell off within two weeks of wearing both. The company is not in my consideration set for such items anymore, losing my repeat business and invoking negative feedback to others. Compare that with sporting-type shoes. The company used to stock brand Slazenger, and now stocks ASIC; both are of an acceptable quality so I repeat purchase and recommend to other customers. With its purchaing power, The Warehouse could corner the market in footwear; instead, specialist sporting goods stores are now stocking such as footwear for schoolchildren.