The Warehouse confirms growth slowdown in first half

By NZPA

Monday 10th March 2003

Discount retailer The Warehouse today announced its January half year profit rose 7.2 percent to $63.5 million before a $7.5 million one-off charge lowered the bottom line to $58.2 million.

While the double digit growth of past years has evaporated, the result was in line with guidance and expectations and investors approved the result with a 3c lift in The Warehouse's shares to $5.52. They traded as high as $5.60.

The shares have lost a quarter of their value since January 20 following concerns about Christmas sales.

Chief executive Greg Muir reiterated the company's February 5 "guidance" on the full year net profit in a range between $90 million to $95 million.

"It's not the double digit increase that we might have hoped for but it's definitely an increase," Mr Muir said of the result.

Group sales rose 8.4 percent to $1.098 billion, while operating earnings rose 4.8 percent to $105.6 million.

The company announced a 10.5 cents per share imputed dividend, up 1cps on a year ago, which will be paid on April 22.

The slow Christmas sales may be an aberration, with February sales up 7.2 percent in core operations and same store sales up 6.3 percent, the company told an analysts' briefing.

"The detail that they gave in the briefing would hopefully make people quite comfortable that the New Zealand business is not a declining business, which is what some people were worried about," UBS Warburg Head of Research David Lane said.

"Hopefully it will perhaps give some more credence to the view that Christmas in New Zealand was an aberration," he said.

Mr Muir said Warehouse Stationery had a great first six months, with both the retail and business-to-business operations hitting sales and earnings targets.

"That business is now a genuine multi-channel business that can further extend its presence into the stationery and business machines market."

He said the mainstream "red sheds" had record sales in the half, up 6.2 percent.

"While the market was disappointed with the sales numbers that we released on February 5, the earnings result for red sheds was a solid one as demonstrated in our maintaining operating margins above 13 percent.

"We are not complacent about our position in the market and are increasing our focus to develop and execute strategies that will grow our sales and earnings momentum in the red sheds," he said.

Analysts expect operating margins, which fell to 13.04 percent from 13.15, to improve, thanks to the soaring New Zealand dollar.

"There will be some improvement through the currency but a large part of the improvement comes through taking some of the operating costs out of the business," Mr Muir said.

In what could be bad news for Michael Hill International, early results of a trial of jewellery sales in four Warehouse stores had been "very encouraging". A roll-out to all Warehouse stores would be completed this year.

Warehouse Stationery sales were 25.2 percent ahead of the same period last year. It recorded an operating margin of 5.2 percent compared with 1.6 percent a year earlier.

The Warehouse Australia achieved a 19.4 percent increase in sales over the corresponding period last year, but operating earnings fell to $A4.5 million ($NZ4.94m) compared with $A6.5 million ($NZ7.13m) a year ago.

The Warehouse Australia plans to open up to ten large format stores before the end of July, bringing new store openings to 27.

Mr Muir said Australian operations were on track and investors would have to wait another couple of years for profit growth.

The company had just opened its first store in South Australia where it was making a major push.

The Warehouse's ratio of debt-to-debt plus equity improved to 31.5 percent from 38.9 percent a year earlier.

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