Warehouse boosts 3rd quarter sales 8.6%, says ‘red sheds’ margins improve

Warehouse Group [NZX: WHS], New Zealand's largest publicly listed retailer, posted an 8.6 percent gain in third quarter sales and said profitability improved at its largest 'red shed' unit.

Sales rose to $604.8 million in the three months ended April 27 from $557.1 million in the year earlier period, the Auckland-based company said in a statement. Sales at its main 'red shed' unit increased 3.2 percent to $367 million, it said.

Warehouse chief executive Mark Powell, who notches up three years in the job this month, is two-thirds of the way through a store rejuvenation programme at the 'red sheds', its distinctive large store general goods format. In the latest period, the 'red sheds' posted a 3 percent increase in same-store sales, its 13th consecutive quarter of growth, while gross margins at the unit were "slightly higher" than the year earlier period.

"The 'red sheds' continues to make progress" with increased numbers of customers shopping in the stores and online, Powell said in the statement. "This all supports our strategy of ongoing investment in our stores, our people and our products, to deliver improvements for our customers. The sales and transactions increases tell us that they are noticing the difference."

While a late start to winter had impacted apparel sales, the segment was ahead of the year earlier period and winter ranges are expected to trade well as cooler weather kicks in, Powell said.

To expand group earnings, Powell aims to grow the 'non-red' side of his business to be as large as the red sheds, though he says this is a long-term aspirational target, given red sheds have about $1.6 billion in annual sales compared to non-red at about $650 million.

Powell, who succeeded in improving the performance of the company's 'blue shed' stationery chain before taking the top job, is expanding the group through acquisition, buying 11 businesses in the past 18 months, adding technology and appliance retailer Noel Leeming, outdoor sports chain R&R Sports and online sporting goods retailer Torpedo7.

In the latest period, sales at its 'blue sheds' rose 8.1 percent to $68.2 million, while Noel Leeming increased 10.4 percent to $146.9 million.

Sales at the Torpedo7 group rose to $22.7 million from $5.3 million the year earlier, although this reflected just one month of sales following its acquisition in April 2013. On a comparable basis, and including the subsequent acquisitions of Number 1 Fitness, Shotgun and R&R Sport, sales rose 12.6 percent, the company said.

"The significant reshaping of the group has positioned us well for a period of consolidation, where the emphasis will be more on leveraging returns from the base we have built," chairman Ted van Arkel said in the statement.

Shares in Warehouse are rated an average 'hold' according to analysts polled by Reuters. The stock last traded at 3.80, and is the second-worst performer on New Zealand's benchmark NZX 50 Index so far this year, having shed 9.6 percent.

(BusinessDesk)