Warehouse lifts annual earnings 12%

Warehouse Group lifted annual earnings 12%, just beating the top end of its guidance, as the country's largest listed retailer made bigger reductions in its cost base to widen operating margins.

Adjusted profit rose to $64.1 million in the 52 weeks ended July 31 from $57.1 million a year earlier, the Auckland-based company said in a statement. Revenue increased 5.6% to $2.92 billion with sales growth across all of the retailer's brands. Gross margins shrank due to its Noel Leeming group lifting sales of low-margin consumer electronic goods. However, operating margins widened to 3.8% from 3.4% as Warehouse focused on stripping out costs.

Net profit rose 49% to $78.3 million, or 22.6 cents per share.

Chief executive Nick Grayston said the board has approved his three-year strategy, which will focus on lifting profitability by removing "complexity and cost" of an inefficient operating model and reshape the company's physical footprint to support the digital business. The group's online sales rose 22% to $185.8 million, accounting for about 6% of total revenue.

"The improvement in the financial performance of the group demonstrates that the trading strategies are delivering results," Mr Grayston said. "Our task is to ensure that the business is a strong and profitable competitor in the future retail environment, which will look very different from the traditional retail business model that has served us so well to date."

Warehouse spent hundreds of millions of dollars overhauling its outlets and buying new businesses to drive future growth in the past few years under the leadership of Mark Powell, and Mr Grayston, a former Sears Holdings executive, took over in December.

The board declared a final dividend of 5c a share, payable on December 8 with a November 25 record date. That takes the annual return to 16c, unchanged from a year earlier.

The shares last traded at $2.90, and have increased 8.6% this year.

The company's flagship 'Red Sheds' stores lifted sales 2.5% to $1.76 billion for a 12% increase in operating profit to $79.6 million, and the blue shed stationery chain increased sales 6.2% to $279.2 million with profit up 12% to $14.3 million as better sourcing helped widen margins for both units.

Noel Leeming profit jumped 88% to $12.1 million on a 13% increase in sales to $752.1 million, grabbing market share with the collapse of consumer electronics chain Dick Smith while ceding margin due to the increased volume of consumer electronic goods being sold.

Torpedo7 boosted sales 13% to $148.7 million for a profit of $3.4 million, building on the breakeven result it achieved a year earlier, while the launch of its financial services unit reported an operating loss of $3.4 million, which Warehouse said was in line with expectations.

(BusinessDesk)

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