Warehouse sells unprofitable Torpedo7 for $1

Thursday, 22 February 2024

Retail company The Warehouse Group has sold off its unprofitable Torpedo7 business.

In a market announcement on Thursday, the operator of The Warehouse, Warehouse Stationery, Noel Leeming and TheMarket.com said it had sold the sports and outdoor equipment business to Auckland-based Tahua Partners for just $1.

Group chief executive Nick Grayston said the company was best placed to focus on its other retail chains.

The Warehouse Group expects the sale will result in a non-cash, pre-tax accounting write-down ranging between $55 million to $65m in its half year result due to be released on March 30.

There are 24 Torpedo7 stores operating across the country.

“While this sale will impact our 2024 half year result significantly, we expect that the net cash impact (post tax) of the sale will be close to zero. Importantly, the sale of Torpedo7 will allow us to focus on our core brands and improve the group’s financial performance,” Grayston said in a NZX note.

“Torpedo7 represents only 5% of our group sales, and the tough reality is that our attention and resources are better spent strengthening our core The Warehouse, Warehouse Stationery and Noel Leeming retail brands.”

Torpedo7 has been The Warehouse Group’s troubled child, grappling with declining sales, for quite some time.

Last year Torpedo7 reported a 5.4% decline in sales, wrote down the value of its excess and aged stock by $4.6m and announced its biggest ever operating loss of $22.2m.

Grayston said lower consumer demand post-Covid, driven in part by a global decline in the bike market, had impacted Torpedo7’s sales and profitability.

He said new owner Tahua Partners could “focus more attention” on its turnaround.

The sale is expected to be completed by the end of March 2024.

“The sale of Torpedo7 is one of the steps we’re taking as part of our strategic reprioritisation to narrow and simplify our focus on improving our performance and delivering better value to shareholders and customers. Other initiatives include managing gross profit margin, reducing our cost base and rebalancing capital expenditure,” Grayston said.

A Tahua Partners spokesperson said they were delighted to welcome Torpedo7 into their business, which includes Burger King, Starbucks, Hannahs and Number One Shoes.

The Warehouse Group bought Torpedo7 a decade ago as it looked for new avenues of growth after its core discount chain The Warehouse hit its peak footprint with the iconic “red sheds” spread throughout towns and cities around the country.

At the time, Torpedo7 was an online only retailer but The Warehouse planned to expand the business by opening stores throughout the country.

The company invested $79.3m in the business, paying an initial $52.5m for Torpedo7 and $26.8m for additional companies such as No.1 Fitness, Shotgun Supplements and R&R Sports to bolster the business.

Shares of The Warehouse were down 3 cents trading around $1.25 following the announcement.

Retail commentator Chris Wilkinson said selling off Torpedo7 was a good move, and followed a global trend towards large companies “doubling down on their core operations” to fend off fierce market competition.

“It's been clear for some time that The Warehouse has been considering its options for the business which hasn't sat comfortably alongside their general merchandise and appliance and electronics brands. These will need additional focus as close competitors in those categories, including Wesfarmers and JB Hifi, continue to gather momentum,” said Wilkinson.

“Torpedo 7 is a great concept, but consumers seem to struggle to understand just what it is alongside competitors in the recreational goods and apparel category. Rebel Sport has established itself well and is the dominant player in their categories, while Mountain Warehouse, Macpac, Kathmandu and Bivouac jostle for market share in apparel.

“In terms of bikes, NZ has some very strong local brands such as EVO Cycles and Australian brand 99 Bikes are intent on making big inroads here. It leaves little room for those that are amongst all these categories.”