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Mitre 10 NZ posts 38% gain in FY profit

Mitre 10 NZ posts 38% gain in FY profit by reining in costs as margins squeezed

By Jonathan Underhill

Oct. 24 (BusinessDesk) - Mitre 10 (New Zealand), the cooperative that services the Mitre 10 hardware chain, posted a 38 percent gain in full-year profit after reining in some expenses including wages, helping offset some margin pressure on seasonal products.

Profit was $4.4 million in the 12 months ended June 30 from $3.2 million a year earlier, the Auckland-based company said in a statement. Revenue from the sale of goods rose to $818 million from $767 million.

The cooperative, whose shares are held by its store-owning members, supplies goods and services to the 81 outlets in the group, which it says makes it the nation's biggest home improvement and garden supplies retailer. It competes with the ITM chain, Australia's Bunnings Warehouse, Fletcher Building's Placemakers and the Carters chain in what chief executive Neil Cowie says is "a highly competitive market".

"We're cautiously optimistic," Cowie told BusinessDesk. "There's been some softening around the edges" through the 2017 election "but people will still be investing in their homes and there will still be homes being built. If you look at construction, the new coalition is looking like investing in houses and having a push on infrastructure."

Total stores fell by one during the year as a result of the earthquake-related close of the Kaikoura outlet. Cowie said he expects the Mitre 10 network of stores to grow, including several of the Mega format stores and a few regular Mitre 10 that are likely to scale up to Mega.

The aggregate of Mitre 10 store sales rose to $1.36 billion in the latest year, from $1.24 billion.

Cost of sales rose to $747 million in the latest year from $692 million. Margins were squeezed after a mild winter last year, which saw the chain forced to mark down heating products. This year, Mitre 10 has faced a wet spring season.

"It's still early days so hopefully there's a bit of pent-up demand," he said. " Seasonal categories can be under pressure. But we're picking that it's still going to be a strong year for our business."

Dividend payments in the latest year fell to $2.26 million from $5.78 million a year earlier, when the company restructured its share registry, mopping up smaller parcels of its redeemable stock. The company also rewrote its constitution and shareholder agreement and no longer owns any of the stores, with the last, at Manukau, sold for $4.7 million, although the gain on sale was just $17,000.

Mitre 10's financial accounts show bank borrowings jumped to $19.1 million from $6.7 million a year earlier, and its finance costs rose to 1.1 million from $637,000. At balance date the company had $68.7 million of unused facilities compared with $50.5 million a year earlier.

Cowie said as part of Mitre 10's restructuring it moved to paying member rebates by installment rather than at the end of each year, which helped its members manage their cash flow and reduced the financing "bulge" it previously faced.

Unlike rivals such at Fletcher and ITM, the Mitre 10 outlets rely less on trade sales - that is, to builders - and the split is currently 70 percent retail and 30 percent trade, he said. Mitre 10 stores are currently rolling out revamped bathroom departments having spruced up its kitchens departments in a move that led to a 30 percent increase in kitchen sales, he said.

"Our trade strategy is to not just to sell concrete and Pink Batts - we're happy to sell them (builders) the kitchens and bathrooms as well," Cowie said.


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