Aussie hurts Warehouse but worst should be over

By Phil Boeyen, ShareChat Business News Editor

Friday 7th September 2001

A 14% drop in full-year profit at retail group The Warehouse (NZSE: WHS) reflects the growing pains of expanding to Australia, although prospects since balance date have improved.

For the year ended July the country's retailing leader rang up a tax paid profit of $60.4 million, nearly $10 million lower than last year's $70 million result.

Sales jumped considerably, by 55% to $1.665 billion, as the company counted the cash from improved sales in New Zealand and a full-year's trading in Australia.

Total group operating earnings before interest, unusual items, goodwill amortisation and taxation for the period were $122.1 million, 10% higher than previously.

As previously announced, sales in New Zealand were 17.2% higher than last year. Growth came from all sectors, with revenue at The Warehouse up 15% to $1.012 billion, Warehouse Stationery up 48% to $93.5 million and The Warehouse Australia up 9% to $404.5 million.

One of the factors that has hurt The Warehouse's latest result is a drop in margins in all its businesses.

Operating margins at The Warehouse stores fell to 10% from 10.5% previously as a result of heavy promotional activity in the fourth quarter and the weak NZ dollar.

Margins at Warehouse Stationery stores dropped from 7.9% to 7%, attributed to changes in sales mix with higher sales of business machines such as computers and faxes that have lower margins than general stationery.

"Warehouse Stationery's operating earnings have also been reduced by a significant infrastructural investment required to support the nine new stores added during the year," the company says

"Historically it takes up to two years for a new Warehouse Stationery store to become profitable. An aggressive store rollout programme therefore temporarily depresses operating margins."

However, as the company warned in April, the main slump was across the Tasman where its Australian operating margin was negative 0.4%.

"As indicated to the market on April 27th, the decision to clear slow moving inventory from The Warehouse Australia has resulted in lower than expected operating earnings contribution from the Australian business."

Overall the company's profit margin for the year fell by almost half, from 6.6% last year to 3.6%.

"The lower margin reflected the weak earnings contributions from The Warehouse Australia, as well as the additional interest expense and amortisation of goodwill ($7.7 million) from the acquisition."

A $3 million investment in eVentures was also written down during the year, to $1.8 million.

Total assets have risen $258 million to $632 million, primarily as a result of the acquisition of Clints and Solly's in Australia, while total end of year inventories were $106 million higher than previously.

Around a third of that was in New Zealand, which the company says is largely in line with the 21.5% increase in retail floor space.

The rest - $66 million - was in Australia, where the company now has 117 stores, having opened ten new stores in the financial year ended July.

In the next financial year The Warehouse Australia plan to open sixteen stores in new locations and two replacement stores. Nine small stores will close.

Trading since balance date has been mixed in New Zealand, with August sales at The Warehouse up just 6.3% on last year, Warehouse Stationary sales for the same month were up 49.7%.

The company says these stores benefited from increased activity from the launch of Hewlett Packard computers.

More importantly perhaps is that there is some good news coming in from Australia, where August sales rose 14.6% in Australian dollars compared with August last year.

"The Australian retail chain traded ahead of sales expectations in August, with sales and gross margin dollars being above budget for the first time since the business was acquired on 1 August 2000," the company says.

The Warehouse is paying a final dividend of 4 cents per share to bring the year's total payout to 12.5 cents, the same as last year.

Comments from our readers

No comments yet