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Warehouse 1Q sales bolstered by new acquisitions, Red Sheds margins squeezed

Friday 8th November 2013

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Warehouse Group, the country's biggest listed retailer, boosted first-quarter sales 51 percent as its Noel Leeming and Torpedo7 acquisitions added to revenue, though margins at its flagship Red Sheds brand came under pressure.

Group sales rose to $569.8 million in the three months ended Oct. 27, from $377.3 million a year earlier, before it bought Noel Leeming and Torpoedo7, the company said in a statement. Sales growth in the Red Sheds unit, Warehouse's biggest, didn't translate into gross profit gains as CD, DVD and book sales declined and the stores went through major product range overhauls.

"In line with our strategic plan, the quarter has seen continued investment in our businesses and accelerated investment in new activities with three small bolt-on acquisitions, the launch of new online businesses, new multichannel offerings in the Warehouse such as Click & Collect and in-store Wi-Fi and the start-up of our DRTV business TV international brands," chairman Graeme Evans said.

"While we have seen positive sales results in our retail businesses in the quarter, we are incurring start-up costs as a result of all of these activities," he said.

Evans and fellow director Janine Smith will retire from Warehouse's board at this year's annual meeting as the retailer continues its transformation programme under relatively new chief executive Mark Powell, navigating through a tough retail environment and recovering some of its lost lustre after abandoning forays into grocery and Australia under its previous management.

The flagship Red Sheds unit lifted sales 8.8 percent to $354.5 million in the quarter from a year earlier, and were up 5.5 percent on a same-store basis, with better performances from its Auckland stores and strong growth in apparel, housewares, health and beauty, gaming, jewellery, consumer electronics and appliances.

The Blue Sheds stationery unit, which has been the group's strongest performer in recent years, boosted sales 10 percent to $56.9 million, with same-store sales up 6.1 percent.

The Noel Leeming unit contributed first-quarter sales of $139.2 million and Torpedo7 $19.2 million.

Noel Leeming increased its sales 12 percent and same-store sales were up 6.1 percent from the same period a year earlier, before Warehouse acquired the business.

The shares rose 2.4 percent to $3.89 in trading yesterday, and have climbed 30 percent this year, outpacing the 18 percent gain on the NZX All Index, a capital measure of domestic stocks.

New strategic acquisition from The Warehouse saw the company buying The Noel Leeming Group and take 51% stake in Torpedo7.

How will these affect the company’s earnings, capital expenditure and balance sheet in the future?

The Warehouse shares have increased 17.95% in 52 Weeks (Based 31st October, 2013 price).

Should Investors Buy, Sell or Hold the shares?

Read the latest Independent research report by Investment Research Group to know the answers.

Click here to buy the report

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