After $54.2m loss, Warehouse interim CEO says retail group was 'too ambitious’

Thursday, 26 September 2024

The Warehouse Group’s interim chief executive John Journee is confident the retail company will return to profitability and be able to win back market share within the current 2025 financial year.

Speaking to The Post, Journee, who took over as chief executive of the company in May following Nick Grayston’s departure, said the Warehouse had restructured and stripped the business back to the basics, with the changes it had made already showing promising results.

On Thursday morning The Warehouse announced a $54.2 million loss in the year to July 28, with its earnings significantly impacted by the disposal of Torpedo7, which cost the group $60.5m.

Group sales fell 6.2% to $3 billion in the year, down from $3.4b a year prior.

Analysts and consumers have for some time held the belief that the group, which owns chains The Warehouse, Warehouse Stationery and Noel Leeming, has fallen out of fashion, with unexciting and unappealing product ranges.

Some have voiced concerns that the company “no longer knew what it wanted to be”.

Journee and company chair Joan Withers were unusually open about the company’s downfall and sub-par performance in the 2024 financial year. Journee said the group was “too ambitious” and “took our eye off the ball on product”.

Withers branded the financial result “unacceptable” and “one of the most challenging” in the retail company’s 42-year history.

Journee told The Post the group was not back to where it wanted to be, but it had made progress to move away from the agile operating model and reinstate parts of its business that were removed under the leadership of Grayston.

He said the group was at the start of its turnaround journey; which had been “tough” both on him personally and the team.

“We've reset the strategy to move away from an ecosystem group-led strategy to a brand led strategy ‒ that’s a key unlock for our turnaround.

“We've disposed of our loss-making businesses Torpedo7 and TheMarket.com, we've restructured our leadership team away from a group structure to a more brand-focused, leaner leadership team, and we've moved away from the agile model that was moved to support the ecosystem; back to a fit for purpose retail operating model, which has enabled us to support our retail brands more appropriately.

“The heavy lifting and the detailed work is only starting. Some of our buying work that we needed to get under way started earlier in the year, and increasingly we’ll be focused on retail fundamentals ‒ that craft and the science of retail that's so important to get right,” he said.

“Those results will start to increasingly show as the year goes through, some of the changes that were made earlier on are starting to appear in our ranges, arriving for summer and Christmas, and the encouraging news is that our customers are responding really well to the newness and the trend and new value positioning we're putting around a lot of our range, especially in home.

“Women's summer fashion has just started to arrive, and early indications there are that customers are loving it. We’ve made improvements in our health and beauty range, and people are still loving what we're doing in pantry with The Market Kitchen range.

“We're seeing green shoots across our ranges, and those green shoots will turn into greater scale as the year progresses.”

Growing the The Warehouse’s grocery offering is no longer a focus for the group. Journee said instead it was focused on product offering and turning around sales within its other categories such as homewares, beauty and clothing and apparel.

Following a turbulent period of redundancies and company restructures in previous years, Journee acknowledged that some of those decisions had left the organisation “spread too thin”.

One of the first changes Journee implemented upon taking over as CEO was to “beef up” the merchandise and buying teams, those responsible for the products that end up on shelves.

“One of the missteps we made under the agile world was de-emphasising the critical role that our merchant teams have, and became too focused on our essentials range. Our buyers were focused on that everyday range … but they weren't given the breathing room and sufficient scope to go into newer, more exciting, trendy products. That was at the time, a deliberate decision, which our customers didn't love, so the areas where that matters, we’ve now put that back.

“We have reinvested back into our merchandise teams. We've got more talent in there, we've got more work in our design, and engagement with our sourcing teams overseas. The other thing is we’ve made a move back to speed to market cycles. The essentials business is a predictable, formulaic business, but that seasonal and fashion element requires a test and learn and speed to market, so we reintroduced those disciplines.”

The group created 14 new roles within its buying and planning merchandise teams, taking staff numbers in those departments, including sorting, to 180, Journee said. “Some of those were gaps that were filled, we've still got a couple of vacancies we're filling at the moment, but broadly we've got a full team back on deck.”

Other changes made included giving Noel Leeming and Stationery Warehouse back their own leadership and retail buying teams that would allow “freedoms” to respond quicker to consumer demands and market trends, Journee said.

He said the outlook for the retail environment in New Zealand remained tough, but he was hopeful internal changes made at the group would set it up to win back business and have a much better year ahead.

“We're seeing some market share come back, but we're still seeing some pressure on margins as we transition our product range. We're also seeing the external pressures of a highly competitive market and a continued subdued consumer environment probably weighing on sales growth in medium term, but we are seeing our share of that increasing.”

During an investor and analyst briefing on Thursday morning, chair Withers said the group had not progressed in finding a new permanent chief executive, and would not be making a new appointment this calendar year.

The Warehouse Group operates 218 stores across its three brands.

Company shares are trading at around $1.20, down 26% over the last year.

Milford Asset Management equities analyst Jeremy Hutton put the Warehouse Group’s poor financial performance in the past year down to its brands having the wrong products that weren’t resonating with customers, and having to discounting heavily to try to move that stock.

Hutton said turning around the company’s performance would not be a quick fix, but it was encouraging to see it had already implemented changes to freshen up its product offering.

“It's going to be a hard remainder of this year, and through the Christmas period. Christmas is always a big swing factor in a business like The Warehouse and it’s still unclear how the underlying consumer is going to feel at that point, and that sort of highlights why they're still remaining very cautious with no final dividend payment.”

Hutton said he expected the business to return to profit in the current financial year. “When you strip out some of the parts of the business that were heavily loss making, they will have a small profit if everything else stays the same.

“If [appetite for consumer spending] starts to get a little bit better in the new year, with a few interest rate cuts and the job market perhaps stabilising, they might get a bit more recovery from that, but all else being equal, they should return to profitability.”