By Jenny Ruth
Wednesday 16th February 2011
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The Warehouse Group's track record has been disappointing for a sustained period of time which begs the question as to the extent (if any) of earnings growth potential going forward, says Sarndra Urlich, an analyst at First NZ Capital.
“The quarterly sales performance of the Red Sheds during the past few years has been disappointing, to say the least, with 13 out of the past 18 quarters reporting negative (headline) sales growth,” Urlich says.
In its last report, The Warehouse said total Red Shed sales were down 2.7% for the two months ended January 2 with same-store sales down 3.8% compared with the same two months a year earlier.
While management has tried a number of strategies, they haven't been sufficient to offset the impact of competition, structural changes such as the steep decline in CD and DVD sales, and the weak economy.
“If the status quo is not yielding results, and has not done so for some time, where to from here?
A takeover offer, most likely to Australia's Woolworths, is one option but that would depend on a number of factors including major shareholder Sir Stephen Tindall being a willing seller.
“The conundrum now is that the longer The Warehouse's earnings come under pressure, the less compelling the valuation metrics become both at a fundamental level and as perceived by a potential acquirer.”
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