Warehouse says FY earnings and dividends to fall
Warehouse says FY earnings and dividends to fall as it seeks $115M to expand financial services
By Tina Morrison
March 6 (BusinessDesk) – Warehouse Group expects full-year earnings to fall as it invests in financial services and buys rival retailers to diversify away from its mature ‘red shed’ discount stores where growth is limited.
Warehouse expects adjusted full-year profit of $67 million to $71 million, down from $73.7 million last year, the Auckland-based company said today. It posted a 13 percent drop in adjusted first half profit of $46.2 million today, at the bottom end of its $46 million to $48 million forecast.
Warehouse said today it plans to pay $3 million for the Diners Club New Zealand business to expand its range of financial services. The company is beefing up financial services as it seeks to diversify earnings away from its core discount barn stores, expanding its stationery stores, acquiring the Noel Leeming entertainment and technology chain and increasing its stake in the outdoor and adventure retailer Torpedo7 Group.
“We are in an ongoing process of reshaping The Warehouse Group, with each business at a different stage in its journey,” chairman Ted van Arkel said. “Opportunities such as financial services, which has arisen because of our strategy, are exciting and will provide material earnings to the group in the medium term.”
In order to invest in its business to drive future earnings, the company will cut its dividend payout ratio to between 75-85 percent of adjusted profit, from a previous policy of 90 percent of adjusted profit, it said. To provide certainty for shareholder, the policy will phased in over the next two years when a minimum dividend of 19 cents per share will be paid.
Shares in Warehouse are in a trading halt as the company seeks to raise $115 million to strengthen its capital base to support its financial services strategy. It plans to sell $100 million of shares at a 5 percent discount at $3.23 apiece to institutional shareholders today. It also plans to offer a $15 million share purchase plan to other New Zealand shareholders who hold shares at March 18.
Warehouse founder Stephen Tindall and his Tindall Foundation will participate in the equity raising to maintain existing stakes in the company.
The company’s financial services business is expected to lose as much as $3 million after tax in the 2014 and 2015 financial years as the business is developed, and contribute to earnings from the 2016 financial year, Warehouse said.