Warehouse posts 1.7% gain in third-quarter sales, retains annual profit forecast

Warehouse Group, the country's second-biggest listed retailer, posted a slower rate of sales growth in the third quarter as it made changes to its business. Still, the company affirmed it's on track to meet its forecast annual profit.

The Auckland-based company said group sales rose 1.7 percent to $683.5 million in the third quarter ended April 30, compared with a 5.5 percent pace in the same quarter a year earlier. It said the latest sales were in line with expectations and its annual profit forecast remains unchanged.

In March, Warehouse posted a 76 percent drop in first-half profit to $13.6 million after taking an impairment charge against its financial services unit, recognising restructuring costs and earning less from its 'red shed' department stores. At the time, it said weak trading had continued into the second half of the year and as a result, full-year adjusted profit was forecast to be $54 million to $58 million, a drop of as much as 15 percent from a year earlier.

The retailer is on a cost-cutting drive, stripping a net 130 jobs at its store support offices in Auckland and some regional centres, in a slimmed business structure to whittle down leadership into its two new arms and move support systems of the existing brands to be group-wide.

"The sales growth achieved by the group in the third quarter is positive considering the amount of internal change the business has gone through in the third quarter," chief executive Nick Grayston said. "The varied performance across the brands highlights that we have a lot of work to do as we position the business to face the competitive challenges ahead of us".

In the company's largest unit, its 92 'red shed' Warehouse stores lifted sales 0.6 percent to $391.7 million. Same-store sales advanced 2.7 percent with both transaction and basket size increasing compared to the same quarter last year.

"Growth occurred in most categories," the company said. "In particular, our apparel categories performed strongly during the quarter as customers responded to our new designs and pricing strategies. This was offset by increased market competitiveness across Easter and lower performance in entertainment and home categories."

During the period, the company's Queenstown store relocated to a new site at the Five Mile retail centre.

Its 77 Noel Leeming appliance and technology stores increased sales 5.7 percent to $190.9 million while same-store sales gained 5.2 percent.

"Performance was strong across all categories, resulting in continued market share growth," the company said. "Year-on-year growth remains strong but has slowed as the business cycles the anniversary of the exit of Dick Smith from the market."

Sales dropped 0.6 percent at the company's Warehouse Stationery 'blue shed' stores to $72.1 million, and were down 1.1 percent on a same-store basis. Warehouse cited price competition for technology products and noted the year-earlier period had included NZ Post postal price increases.

The business opened its 68th store toward the end of the quarter in Hawera, Taranaki.

Its Torpedo7 sports chain posted a 1.1 drop in sales to $34.4 million, with same-store sales sliding 0.8 percent.

"The reduction in sales has come from the Torpedo7 Australian online part of the business and softer trading in No 1 Fitness as we reorganise that business for the future," the company said. "The 1-Day online business and Torpedo7 physical stores continue to perform well."

During the quarter it opened a Torpedo7 clearance store in Newmarket, Auckland, taking total store numbers to 12.

Group online sales rose 13 percent to $45.6 million, with gains across The Warehouse, Warehouse Stationery and Noel Leeming. Online sales made up 6.6 percent of group sales in the quarter, up from 6 percent a year earlier, the company said.

Warehouse shares last traded at $2.12 and have dropped 18 percent the past year. The stock is rated a 'sell', according to the mean estimate of four analysts compiled by Reuters.

(BusinessDesk)