Warehouse in the red after poor Xmas sales

By NZPA

Thursday 6th February 2003

Warehouse investors saw red yesterday after the retail giant revealed disappointing Christmas quarter sales figures and said its full-year profit would be below market expectations.

More than $270 million was wiped off the company's market capitalisation as its shares fell 88c, or 12.4 per cent, to a 15-month low of $6.20.

Investors primed for double-digit growth sold out after the company said its group-wide sales for the three months to January were up only 5.3 percent on the same quarter last year to $657 million.

The Warehouse blamed poor December weather and strong demand for games consoles stocked by competitors for a less- than-sparkling December turnover through its 79 "red shed" stores in New Zealand.

Sales growth through the 128 Australian stores was strong, but a $A7 million ($NZ7.62 million) one-off restructuring cost related to the closing of a Sydney distribution centre is expected to peg half-year net earnings back at a level similar to last year's.

The company said it expected its interim result -- due on March 10 -- would be a net profit of between $57 million and $59 million, compared with $59.1 million last year.

The full-year result was expected to be between $90 million and $95 million -- well down on analysts' estimates of between $106 million and $117 million. Last year the company reported an $82.2 million profit.

Red shed sales for the past quarter rose 3.2 per cent to $454 million. On a same-store basis (excluding business from newly opened stores) sales were up 1.4 percent.

Chief executive Greg Muir said poor weather in December had hit sales of summer lines such as sporting goods.

The company had also missed out on a share of the estimated $30 million spent on Xbox and PlayStation 2 consoles and games late last year. The Warehouse does not stock either console, which had accounted for "a huge chunk" of pre-Christmas toy and entertainment spending.

"A lot of that would normally be available for people to spend on some sort of gift in our stores."

The company was negotiating with PlayStation 2 manufacturer Sony and expected to stock the console soon, Mr Muir said.

January trading had picked up significantly with better weather and a successful back-to-school promotion last month, he said. Total January sales were up 7.2 percent and same-store sales were up 5.2 percent.

Sales through the company's fast-growing chain of 39 Warehouse Stationery stores were up 22 percent to $38 million.

In Australia, sales rose 20 percent to $A149 million, a growth rate that Muir said was "very encouraging". Same-store sales increased 4.6 percent and the company was on track to open 20 new Australian stores this year.

Brett Wilkinson of Direct Broking said the soft red shed sales had led the market to question The Warehouse's plans to add a further 105,000sq m of floor space -- taking the total to 450,000sq m -- by the 2005-06 financial year.

"Maybe this will cause some revision of that strategy," Mr Wilkinson said.

He added that the company's explanations about weather and gaming consoles "sounded a bit thin".

UBS Warburg research head Richard Leggat said the company's sharp share price drop yesterday was probably an over- reaction, but was not a surprise, given the hardening of sentiment towards companies that failed to deliver on expectations.

Some investors would see the share price as "a great buying opportunity".

Comments from our readers

No comments yet