Warehouse says H/Y profit flat on last year, NZ sales modest

By NZPA

Wednesday 5th February 2003

Shares in The Warehouse dived this morning after it warned restructuring in Australia will hurt its first half profit and signalled sales growth in its core New Zealand stores was stagnating.

The shares tumbled 10c, or 1.4 percent, to $6.98 in the opening minutes of trading -- against a year high of $7.90 and a low of $6.41.

The Warehouse, New Zealand's largest listed retailer, said it expects to book a net after tax profit of between $57 million and $59 million for the six months ending January 31 after a pre-tax provision of $A7 million ($NZ7.6 million) for restructuring its Australian distribution division.

That is in line with the $59.1 million figure recorded a year earlier.

The company also said it expects net earnings for the year to July 31 to be in the range of $90 million to $95 million, compared with analysts' estimates -- according to Multex Global Estimates -- of between $106 million and $117 million.

The group will report its interim result on March 10.

Today's profit forecasts came as The Warehouse released a mixed bag of sales figures for the three months ending January 31.

While unaudited group sales rose by 5.3 percent to $657 million during the period -- buoyed by strong growth in its Warehouse Stationery and Warehouse Australia divisions -- growth at its flagship New Zealand "Red Sheds" was modest.

"In general our Warehouse New Zealand stores in Auckland and Christchurch recorded satisfactory sales but stores located in rural or provincial areas performed weaker than expected," chief executive Greg Muir said.

The New Zealand "Red Sheds" recorded a 3.2 percent increase in overall sales in the quarter, with same-store sales (excluding newly opened stores) increasing 1.4 percent.

"Sales were affected by the poor December weather impacting categories such as summer and sporting merchandise," Mr Muir said.

"The launch of Xbox and Playstation 2, which according to media commentary took up to $30 million of retail spend also had an adverse impact on our toy and entertainment sales as The Warehouse does not sell those products."

ASB Securities broker Andrew Kelleher said that on first glance it appeared the poor New Zealand sales growth figures were driving the share price down this morning.

"The share price has probably got a slightly higher sales growth built into it than the New Zealand division is reporting," he said.

"(Analysts') share valuations may be recalculated in line with the slightly lower sales forecasts and come up with a slightly lower price."

Mr Muir said the "Red Shed" sales had picked up significantly in January with the warmer weather and a successful "back to school" promotion. Total sales in January were up 7.2 percent, while same store sales were 5.2 percent ahead of the same month last year.

Warehouse Stationery recorded sales growth of 21.7 percent during the quarter compared with the same period last year -- buoyed by strong Business to Business (B2B) growth and "back to school" sales.

The stationery division recorded its first ever $1 million sales day in January, Mr Muir said.

Same-store sales were 19.9 percent ahead of the same quarter last year. Three new Warehouse Stationery stores were opened in the quarter bringing the chain to a total of 39 stores.

In Australian dollar terms, The Warehouse Australia achieved a 20.3 percent increase in sales over the corresponding quarter last year while same-store sales increased 4.6 percent.

Eight new format stores were opened during the quarter and two stores were closed.

"The property programme for the year remains on track to deliver at least twenty new stores in the 2003 financial year," Mr Muir said.

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