Warehouse annual profit falls 5.9%, less than expected

See also: Warehouse lifts the lid on online business

Warehouse Group [NZX: WHS], the country's largest listed retailer, posted a 5.9% decline in annual profit, a smaller drop than it had projected, as earnings recovered in the second half.

Adjusted profit, which excludes one-time items and is the basis for dividend payments, fell to $57.1 million in the 53 weeks ended August 2, from $60.7 million reported over the 52 weeks a year earlier, the Auckland-based firm said in a statement. Sales rose 4.6% to $2.8 billion. Statutory net profit was $52.4 million.

The Warehouse is focusing on reducing costs and improving its products and productivity as it seeks to getting higher returns from the hundreds of millions of dollars spent overhauling stores and buying new business the past few years.

The retailer reported that its second half "rebounded from a challenging first-half year" with its Red Sheds posting a 3.7% gain in operating profit to $79.6 million, as sales increased to $1.72 billion from $1.67 billion a year earlier. Warehouse Stationery improved its operating profit by 7.9% to $12.7 million, with sales rising 4.8% to $263 million.

The group’s electronics stores company, Noel Leeming, reported a 43% drop in operating profit to $6.4 million, with the first-half impact of a digital switchover and one-off rebranding costs not recovered in the second half. Revenue increased 7.2% to $666 million. Torpedo7, its outdoor equipment store company, saw operating profit shrink to $34,000 from $1.1 million a year earlier, as the costs of rebranding and the integration of recent acquisitions weighed on the bottom line. Sales increased 22% to $131 million.

The company's new financial services business reported a loss of $1.8 million, widening from a year earlier loss of $1.5 million, which it said was in line with expectations.

"The second-half performance was particularly encouraging," chief executive Mark Powell said. "After a period of significant catch-up investment, it was good to see strong profit leverage from continued sales growth."

In March, Powell said he will step down in February 2016 after 14 years, the last four as chief executive that saw him revamp the retailer's so-called 'Red Sheds' and steer its online strategy. Mr Powell has overseen a $100 million 'refresh' programme for the Warehouse stores and led the company through the acquisition of Noel Leeming and Torpedo7, the development of its online strategy and the turnaround of the Warehouse Stationery stores.

Chairman Ted van Arkel said the succession process for the top job was on track. The board declared a final dividend of 5cps, bringing the annual dividend to 16cps. Warehouse is paying dividends solely from its retail-based profit, stripping out its financial services business.

It was too early to provide specific guidance for the coming year but based on current business performance adjusted profit was expected to be in line with 2015.

Warehouse shares last traded at $2.60 and have declined 17% since the start of the year. The shares have fallen from their 2002 peak of $7.83.

(BusinessDesk)