Daily ShareChat: The Warehouse

By Jenny Ruth

Friday 18th March 2011

Although The Warehouse Group's adjusted $53 million first-half net profit was in line with his $52.7 million forecast, the "red sheds" earnings before interest and tax (EBIT) were $2 million above his forecast at $74 million while the stationery division's EBIT was slightly below his forecast at $3.7 million, says Guy Hallwright at Forsyth Barr.

The red sheds' sales were in line with his expectations and although its profit margins fell, they were slightly better than he had expected, Hallwright says. The red shed's same-store (stores open 12 months or more) sales were down 3.3% in the second quarter, a deterioration on the first quarter while the stationery division's second quarter sales growth slowed to 1.2%.

"The New Zealand retail environment has improved since the post-2007 slump but growth remains low and monthly volatility remains high," Hallwright says.

"The Warehouse continues to lose market share, although it is proactively managing margins and reducing costs," he says.

Management remains cautious on the outlook "with increased discounting and price deflation due to the strong New Zealand dollar mentioned, although encouraging progress in categories outside CDs, DVDs and consumer electronics was highlighted, along with a continuing cost focus," Hallwright says.

He expects rising fuel and food prices will be a headwind for the company in the second half.

Recommendation: Hold.

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