Warehouse beats annual profit forecast, keeps dividend unchanged
By Tina Morrison
Sept. 22 (BusinessDesk) - Warehouse Group, known for its flagship 'red shed' discount department stores, beat its annual profit forecast after a better-than-expected second half, and kept its full-year dividend payout unchanged for a third straight year.
Adjusted profit fell 7.7 percent to $59.2 million in the 52 weeks ended July 30, from $64.1 million a year earlier, the Auckland-based company said in a statement. That's ahead of the company's forecast for adjusted profit of $54 million to $58 million.
Net profit slumped 74 percent to $20.4 million as it wrote down the financial services unit it sold on Sept. 9 by $40.1 million and booked $12.4 million in restructuring costs, about half of which was due to redundancies. Those costs were offset by an $11.5 million gain from property divestments, including the sale of its Newmarket property in Auckland.
Under the leadership of chief executive Nick Grayston, who took over from Mark Powell in December 2015, Warehouse has embarked on a three-year strategy to lift profitability by removing the complexity and cost of an inefficient operating model and reshaping the company's physical footprint to support the digital business. It cut 143 non-store based roles in the second half, which is expected to reduce annual costs by $17 million, 70 percent of which relates to salary costs.
"The sale of financial services and the Newmarket property has improved our balance sheet and ability to fund our strategy over the next two to three years," chair Joan Withers said in a statement. "We have made significant headway in transforming the business over the last year."
Warehouse will pay a 6 cent final dividend on Dec. 7, keeping its annual payment at 16 cents for a third straight year.
In the company's largest unit, operating profit at its 92 'red shed' Warehouse stores fell 5.4 percent to $84.5 million as sales remained flat at $1.76 billion. The company said while profit was lower in the first half, it improved in the second half, lifting to $25 million from $23.9 million a year earlier. Its operating margin slipped 30 basis points to 4.8 percent.
"The apparel business performed strongly throughout the year, however, this was offset by weaker performance in some of the general merchandise categories," the company said.
The company added two stores to its Noel Leeming appliance and technology chain, taking the total to 77. The stores boosted operating profit 60 percent to $19.3 million while sales lifted 7.8 percent to $810.7 million, as its operating margin jumped 80 basis points to 2.4 percent.
Its Warehouse Stationery 'blue shed' stores increased operating profit 10 percent to a record $15.7 million even as sales slipped 0.3 percent to $278.2 million. While sales were flat the business reduced costs, helping the operating margin improve 60 basis points to 5.7 percent, the company said.
Warehouse ended the year with 69 Warehouse Stationery stores, up from 66 a year earlier. It launched its first 'store within a store' during the period, with Warehouse Stationery exiting its lease at Auckland Airport and moving into the adjacent The Warehouse store. Trading at the combined store has met expectations in the three months since launch, the company said.
Its Torpedo7 sports chain posted a 21 percent drop in operating profit to $2.7 million while sales advanced 6.1 percent to $157.7 million. The unit's operating margin fell 60 basis points to 1.7 percent as the company cleared aged inventory and took a one-off inventory write down of $600,000 in the No1 Fitness unit. It said costs had reduced in the second half and it remained focused on inventory control and improving profitability through sales growth and cost control.
The group's online sales rose 18 percent to $199.9 million compared with the year earlier, with a 25 percent gain for The Warehouse, and 54 percent lift for Noel Leeming, driven by a mix of promotions and the relaunch of the on-line stores. Online sales made up 6.7 percent of group sales in the quarter, up from 5.8 percent a year earlier, the company said.
Warehouse said that its earnings for the 2018 financial year will be dependent on the critical Christmas trading period, and noted that its transformation programme introduces some uncertainty into its forecasts. It expects to provide an annual forecast at the end of its second quarter.
Warehouse shares fell 0.5 percent to $2.01 and have dropped 29 percent this year.