The Warehouse lower price strategy delivers bumper $74m profit

Wednesday, 25 September 2019

The Warehouse released its year end results today.

New Zealand's biggest retailer, The Warehouse Group, says its shift away from continual sales and discounts is bearing fruit after the company announced a jump in profits for 2019.

The Warehouse Group has reported $74.1 million profit after tax for the year to July 28, up 25.6 per cent.

Chief executive Nick Grayston said the result reflected a shift in strategy that included a move away from inflating prices before offering a discount.

The company was starting to see momentum after the 'lousy numbers of the last couple of years', Grayston said.

The Warehouse chief executive Nick Grayston says becoming more efficient has helped the company's bottom line.

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Sales increased 2.6 per cent across The Warehouse Group, which includes The Warehouse, Torpedo7, Warehouse Stationary and Noel Leeming.

The results reflected the impact of the 175 different initiatives implemented during the course of the year, Grayston said.

The Warehouse was becoming more efficient and focused says chief executive Nick Grayston.

'Those initiatives added over $50m in value,' he said.

Changes included renegotiating contracts with suppliers, the everyday low price promise and efficiencies in store.

Grayston said customers were increasingly aware of prices and buying options.

'The old game of artificially inflating prices and then telling them once a month that for this week, they're half price, the price they should be anyway, that game is coming to an end,' he said.

Online sales had also increased to 7.8 per cent of the group's total sales.

Noel Leeming and Warehouse Stationary had record years.

Grayston said Noel Leeming had been a particularly strong performer, with sales up 5 per cent in 2019.

Shareholders would be paid final dividend 8 cents a share taking the full year dividend to 17c a share, the highest since 2014.

Sales in the second half of the year were up despite warmer than usual winter, Grayston said.

Exchange rates and the conflict in the Persian Gulf were also affecting retailers, he said.

'But good retailers figure out a way to succeed despite those things,' he said.

'What's most encouraging to me is that this isn't just a question of improving on our lousy numbers of the last couple of years since we turned the business around. This is our best operating profit since 2011.'

Hamilton Hindin Greene financial advisor Jeremy Sullivan said investors responded positively to the profit announcement, with share price rising 9c to $2.40 in afternoon trading.

Hamilton Hindin Greene investment advisor Jeremy Sullivan says The Warehouse beat market expectations.

The results were up slightly on the market expectation and confirmed that the everyday low pricing strategy was not going to be detrimental to the company as a whole, despite the strategy being blamed for last year's poor results, Sullivan said.

Headwinds for the group included the impact of lower house prices on how wealthy people felt.

However, the company could benefit from the introduction of GST on overseas sales, making international online purchases more expensive, Sullivan said.

Grayston said there would be challenges in 2020 but the company was well placed.

TheMarket, launched by the group on August 1 after the end of the 2019 financia yearl, would continue to run at an estimated $14m to 17m operating loss for the next few years, Grayston said.

On August 30, The Warehouse chain agreed to pay workers the living wage.

Staff would be paid at least $20.50 an hour until August 2020, when it the rate would increase to $21.15.