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Warehouse Group lifts FY guidance, plans goodwill impairment for Torpedo7

Friday 31st August 2018

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Warehouse Group now expects its full-year adjusted net profit to be approximately 10 percent higher than it previously forecast and announced plans for a $25.6 million impairment of goodwill related to Torpedo7 as it expands into physical stores.  

"Following a stronger than expected end to the trading year in its core Red Sheds and Noel Leeming businesses" the company now expects adjusted net profit for the 12 months to July 29 to be in a range of $58 million to $59.5 million versus the $50 million to $53 million range it forecast in March, it said. The result is 12 percent to 15 percent lower than the prior year, but includes the full accrual for this year’s Short Term Incentive Plan, it said. 

It also said it proposes recognizing a $25.6 million impairment of the goodwill relating to Torpedo7, which is the full remaining goodwill carrying amount that was created when the Warehouse Group bought the business in 2013 and 2014. 

The proposal to write-off Torpedo7’s goodwill is primarily attributed to the repositioning of that business from an online pure play model to a combined physical store and online business, consistent with other retail businesses in the group, it said.

"As a consequence of that shift, the future cash flows, which reflect an investment in a store expansion programme, no longer support the goodwill valuation associated with the original acquisition."

The strategy to expand into physical retail to drive scale in the business is supported by the relative out-performance of the existing Torpedo7 stores compared to online channels, it said. 

In support of the strategy, it will also relocate the majority of Torpedo7’s operational functions from Hamilton to Auckland, sell the Shotgun supplements business, fold-in the No.1 fitness business as a product category rather than a standalone business, and scale back the Australian online presence. 

Warehouse Group said it proposes that the non-cash impairment be recognised in The Warehouse Group’s statutory accounts for the 12 months to July 29, to be released on Sept 21.  

This impairment, however, remains subject to audit by The Warehouse Group’s auditors, PwC.

The stock last traded at $2.04 and is down 1.9 percent so far this year. 


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