Stationery takes up slack for Red Sheds

A strong performance from stationery stores is expected to prop up The Warehouse Group's bottom line when it reports on Friday.

Analysts say the discounter's net profit for the year to August 1 will likely come in at $85 million-$85.4m, virtually unchanged from last year's adjusted figure of $85.2m.

The group, the biggest retailer on the NZX 50, in May posted a drop of third-quarter sales due to weak demand for music, DVDs and winter gear, and said the full year result would be similar to last year.

Nachi Moghe, senior equities analyst at Morningstar Research, expects net profit of $85.4m against sales of $1.69 billion for the full year, but points to strong growth out of Warehouse Stationery, known as the Blue Sheds.

"Third quarter performance was subdued for the Red Sheds but good for the Blue Sheds. This trend might have continued into the fourth quarter," said Mr Moghe.

"They are losing market share to speciality stores or category killers like Bunnings, JB HiFi. That remains a bit of a concern and we will have to wait and see what management has to say about that in its briefing to analysts."

Margins have improved slightly from the initiatives taken over the last few years. "Blue Sheds is firing on all cylinders with solid margin improvement and this trend should continue. I'm expecting profits of $90m for FY11 with a modest uplift in Red Shed sales. The first quarter should benefit from consumer spending ahead of the GST rise in October."

Mark Lister, head of private wealth research at Craigs Investment Partners, expects a bottom line profit of $85m from sales of $1.7b. "We're expecting it to be a reasonably solid result but pretty uneventful I would think.

"I expect the outlook commentary to be reasonably cautious and to note the ongoing challenges the retail sector is facing, so I think we will get a tone of general uncertainty and patchiness in terms of what they are seeing with regard to current trading conditions." The Warehouse share price closed up 10 cents at 366 yesterday.

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