Warehouse profit slips

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The Dominion Post

PROFIT DOWN : The Warehouse Group's profit has fallen in what the CEO says has been a difficult trading environment for retailers.

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It wasn't just that shoppers bought more of their music and movies online that cut a huge chunk off The Warehouse's bottom line this year, the weather played a hand too.

The group's adjusted net profit after tax of $83.2 million was down on market predictions of around $85m, not helped by a $13m slump in music and DVD sales through the Red Shed's during the year. The 15 per cent decline has offset the big discount retailer's continued sales increases in growth categories like footwear, health and beauty, sporting and leisure goods and jewellery.

"The result is softer than my expectation at NPAT level,'' says Nachi Moghe, senior equities analyst at Morningstar Research.

"The Red Sheds was a disappointment with the second half seeing a big drop because of the promotional and clearance activity due to a warmer than usual winter. I think they have good opportunities to grow in footwear and jewellery and recreational items/sport in particular from a low base.''

The group, which saw the strong-performing Warehouse Stationery's sales rise more than 3 per cent to $193.6m, plans to compete vigorously in the core categories apparel and home. It also plans to work on refreshing and refitting existing stores and growing its ground floor area by 30,000 sq m in the next five years.

"Expanding their footprint (will bring opportunities) given that they have just 8 per cent of the non-food retail market and they want that share to increase over time,'' says Moghe.

"But I think this (coming) year will be tough and expect profits to be flat to modestly higher."

'DIFFICULT CONDITIONS'

Group chief executive Ian Morrice said the company was faced with a difficult trading environment for retailers with recovery in overall consumption remaining subdued and patchy.

"One important contributing factor impacting our overall sales and market share performance was an estimated decline of 15 percent in the music and DVD market, as consumers continue to move to the on-line environment.

"Although our share of the sector has increased our music and DVD sales fell by over $13 million in the last year. Adjusting for the impact of this decline in music and DVDs, overall sales were relatively flat when compared to the same trading period last year," he said.

Mr Morrice said though he is optimistic about the New Zealand economy in the medium and longer term, the company expected trading conditions to remain difficult for a period of time, and the company would be focusing on reinforcing its strong price and value position.

DIVIDEND LIFTED

As a sign of confidence, The Warehouse said it had reviewed its dividend policy and lifted the payout ratio from 75 percent to 90 percent of adjusted net profit.

The final dividend will be 8.5c per share, bringing the total ordinary dividend for the year to 24c per share, up 14.3 percent. The special dividend is 5c per share - both are payable on November 17.

"Lifting the company's payout ratio was a key factor in achieving our stated aim of providing superior returns for shareholders over the long term," Mr Smith said.

- with NZPA

- © Fairfax NZ News