Warehouse annual profit falls 5.9%, less than expected

Friday 18th September 2015

Warehouse Group, the country's largest listed retailer, posted a 5.9 percent decline in annual profit, a smaller drop than it had projected, as earnings recovered in the second half.

Adjusted profit, which excludes one-time items and is the basis for dividend payments, fell to $57.1 million in the 53 weeks ended August 2, from $60.7 million reported over the 52 weeks a year earlier, the Auckland based firm said in a statement. Sales rose 4.6 percent to $2.8 billion. Statutory net profit was $52.4 million.

Warehouse is focusing on reducing costs and improving its products and productivity as it seeks to getting higher returns from the hundreds of millions of dollars spent overhauling stores and buying new business the past few years.

The retailer reported that its second half "rebounded from a challenging first half year" with its Red Sheds posting a 3.7 percent gain in operating profit to 79.6 million, as sales increased to $1.72 billion from $1.67 billion a year earlier. Warehouse stationery improved operating profit 7.9 percent to $12.7 million, with sales rising 4.8 percent to $263 million.

The performance of its electronics stores Noel Leeming reported a 43 percent drop in operating profit to $6.4 million, with the first-half impact of cycling the digital switch over and one-off rebranding costs not recovered in the second half. Revenue increased 7.2 percent to $666 million. Torpedo7, its outdoor equipment store, saw operating profit shrink to $34,000 from $1.1 million a year earlier, as the costs of rebranding and the integration of recent acquisitions weighed on the bottom line. Sales increased 22 percent to $131 million.

The company's new financial services business reported a loss of $1.8 million, widening from a year earlier loss of $1.5 million, which it said was in line with expectations.

"The second half performance was particularly encouraging," chief executive Mark Powell said. "After a period of significant catch-up investment it was good to see strong profit leverage from continued sales growth."

In March, Powell said he will step down in February 2016 after 14 years, the last four as chief executive that saw him revamp the retailer's so-called 'Red Sheds' and steer its online strategy. Powell has overseen a $100 million 'refresh' programme for the Warehouse stores and led the company through the acquisition of Noel Leeming and Torpedo7, the development of its online strategy and the turnaround of the Warehouse Stationery stores.

Chairman Ted van Arkel said the succession process for the top job was on track. The board declared a final dividend of 5 cents per share, bringing the annual dividend to 16 cps. Warehouse is paying dividends solely from its retail-based profit, stripping out its financial services business.

It was too early to provide specific guidance for the coming year, but based on current business performance adjusted profit was expected to be in line with 2015.

Warehouse shares last traded at $2.60 and have declined 17 percent since the start of the year. The shares have fallen from their 2002 peak of $7.83.

BusinessDesk.co.nz

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