Jobs go as Warehouse Group takes financial hit, earnings down 60%

Thursday, 23 March 2023

The Warehouse began selling fresh produce in six of its stores last month.

Retail giant The Warehouse Group has taken a financial hit, with its earnings down by 60.9% in its first half of the trading year.

In the 26 weeks to January 29, the owner of The Warehouse, Warehouse Stationery, Noel Leeming, Torpedo7 and online marketplace TheMarket made a net profit of $17.4 million compared with $44.4m in the same period last year.

Despite the drop in earnings, the group grew its sales by almost 5% to $1.8 billion in the first six months of the current financial year.

The Warehouse paid out $6.3m in restructuring costs that contributed to the earnings hit.

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It said the cost of doing business had increased by 3.5% or by an additional $19.1m.

The group will not pay out any interim dividend.

Group chief executive Nick Grayston said it had been a challenging trading environment, with high inflation and continuing cost of living pressures impacting the result.

“We’ve had two quite different quarters – sales in the first quarter of FY22 were strong against a COVID-19 impacted FY22 Q1, while the second quarter was noticeably softer,” Grayston said in the market update.

“While we saw pleasing sales at The Warehouse with 13.2% growth in sales in the half year, Noel Leeming is coming off prior peak years’ performance with customers slowing their spending on big ticket items and working from home products.

‘We’ve also seen Torpedo7 impacted by the global decline in bike and fitness sales and more locally, a decrease in camping and water-related sporting products due to the poor summer weather in the North Island.”

During the six months, the group noted that online sales had decreased and foot traffic into the stores had increased.

The Warehouse sales grew by 13% to the end of January to just over 1b, meanwhile Warehouse Stationery sales grew by 1.7% to $124m.

Sales at Noel Leeming decreased by 4.5% to $556.7m and Torpedo7 sales decreased by 1% to $96.4m.

Overall, online sales dropped and now account for 11% of group sales, compared to 19.6% in the period last year.

The Warehouse’s grocery category, however, picked up momentum in the six months and sales increase by 34%. Grocery sales now make up over 22% of the red shed’s total sales.

Last month The Warehouse Group began trialling the sale of fresh fruit in six of its stores, including in Whangārei, Westgate, Lyall Bay, Riccarton, Timaru and Invercargill.

The Government has said it wants more competition in the supermarket sector following a Commerce Commission review which found that the supermarket giants could be making $430 million a year in excess profits, and The Warehouse has flagged its interest in expanding more into the sector.

The Warehouse first entered the grocery market 16 years ago, but the venture was short-lived.

In 2006, the retailer launched The Warehouse Extra at Sylvia Park – a 12,500-square-metre store which helped the company enter the grocery sector, before opening one in Whangārei and Hamilton.

The Extra format mirrored Walmart in the United States. It had an on-site bakery and cafe, liquor outlet, health and beauty area, and pharmacist. It was also meant to have fresh fruit and vegetables, hot chickens, fresh meat, and a full chilled and frozen range.

Staff lay offs

Grayston confirmed that the group had made the decision to axe up to 340 roles in its Auckland support office. It had initially proposed to axe 190 jobs in January.

The planned redundancies came as part of The Warehouse’s cost cutting measures as it worked to improve its financial performance and operational efficiency, he said.

The group plans to wind up its discount goods online business 1-Day and bring TheMarket.com and Torpedo7 into its group operating structure.

The Warehouse said it expected to face more headwinds as the year progressed as a result of rising interest rates and cost of living pressures. It also flagged increasing wage bills and the cost of doing business as other challenges it faced.

“While the macroeconomic outlook remains unpredictable, we are taking action to ensure the ongoing improvement in operational performance,” said Grayston.

“We are committed to our strategy to create a future fit retailer to deliver great value for our customers, as well as completing existing major programmes of work to deliver operational efficiencies.”