The Warehouse net profit down 20%

Tuesday, 17 March 2020

The Warehouse Group has reported 20 per cent drop in profit to $29.2 million for the half year to January 26. 

But group sales, which included The Warehouse, Warehouse Stationery, Noel Leeming, TheMarket and Torpedo7, were up 2.6 per cent to $1.68 billion. 

Group chief executive Nick Grayston said the results were a positive start to trading for 2020, given the 'compressed Christmas trading period and issues with fulfilment in The Warehouse and Warehouse Stationery brands'.

Grayston said that while the outlook for the rest of the year was positive, this could change dramatically as a result of the impact of the coronavirus on retail. 

**READ MORE:

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The company expected to report a full-year profit after tax to be in the range of $75m to $77m, though this depended heavily on how the economy coped with the spread of the Covid-19 coronavirus. 

On February 26, the company told investors that it did not expect there to be a material impact to the full year results, however, this could change dramatically in the current volatile retail market, Grayston said.

'The Group continues to asses the impact of the Covid-19 pandemic on financial performance, including stock availability from impacts to our offshore supply chain, potential impacts to our employees and operations in New Zealand and in Asia, and our customers.'

On March 13 the company implemented restrictions on toilet paper, face masks, hand sanitiser and hand soap amid panic-buying. 

Grayston said the company was working with the Ministry of Social Development to ensure vulnerable groups, like the elderly, had access to supplies as the coronavirus situation worsened.

Online sales had also increased to 7.8 per cent of the group's total sales after the launch of the online marketplace, TheMarket in August.

It was still early in the development of the platform and progress was in line with expectations, Grayston said.

In September, Grayston told shareholders that TheMarket would run at an estimated $14m to $17m operating loss for the next few years.

This continued to be the case, Grayston said. 

Teething problems with the new fulfilment strategy, which included centralising distribution, also had an impact on sales levels.

'This was an unfortunate hiccup in the process but these things happen in transformations,' he said.  

Grayston said the company was well positioned for the year after investment to reshape the business.

'A lot of the 275 different initiatives that we have been working on for the last 18 months to two years are starting to pay off. Not withstanding the problems we have had with fulfilment and the condensed shopping calender, we are quite pleased with this result.'

These initiatives included dropping constant sales in favour of an everyday low price strategy and integrating smaller Warehouse Stationary stores into The Warehouses.

Hamilton Hindin Greene investment adviser Tom McBride said that the potential for supply chain interruptions and negative consumer sentiment was putting a lot of stress on retail and this could have an impact on businesses like The Warehouse.

'You are going to see people pull back on purchases, particularly discretionary purchases. The Warehouse has a lot of consumer staples and that might pull them through but across the board you going to see a pull back in retail sales and that will effect The Warehouse,' McBride said.

Shareholders will be paid 10 cent a share interim dividend on April 17.