Daily ShareChat: The Warehouse Group

The Warehouse Group's first-half operating profit was in line with expectations but the stationery division's $3 million earnings before interest and tax (EBIT was about $1 million ahead of his forecast, says Guy Hallwright at Forsyth Barr.

Hallwright says he had assumed a recovery in the stationery division "however sales trends in the second quarter were even more positive and this flowed through into stronger EBIT."

The "Red Sheds" EBIT margins were down about 10 basis points and management blamed seasonal merchandise clearances.

"Outlook comments were somewhat cautious with management uncertain about the sustainability of recent improvements in consumer confidence," Hallwright says.

"The NZ retail environment appears to be improving slowly, although monthly volatility remains high." The company expects to see a continued gradual improvement in non-food retail sales but this is likely to remain promotionally driven, he says.

Hallwright has cut his 2010 full-year forecast slightly from $86.9 million to $86 million and cut his 2011 forecast from $94.2 million to $92.3 million. His valuation has fallen from $3.91 a share to $3.87.

The company is proactively managing margins and cutting costs. While a Woolworths or Foodstuffs takeover remains possible, it is unlikely in the short term, he says.

BROKER CALL:  Forsyth Barr rate The Warehouse Group as hold.

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