Mitre 10 lifts annual sales on Auckland DIYers, sees economic headwinds ahead

Monday 21st September 2015

Mitre 10, the homeware chain cooperative, lifted annual sales 8.7 percent as the Auckland real estate market helped fuel demand for do-it-yourself goods, but is now bracing for headwinds as the kiwi dollar weakens and economic growth slows.

Network sales rose to $1.1 billion in the year ended June 30, from $1 billion a year earlier, the Auckland-based retailer said in a statement. Distributions paid to cooperative members rose 17 percent to $67.2 million.

Mitre 10 widened its range and focused on customer service to increase sales, while its larger format Mitre 10 Mega stores, which it launched a decade ago, now make up 80 percent of revenue.

"There's lots of legs in the Mega network, and we'll continue to grow that," chief executive Neil Cowie told BusinessDesk. "Economically things were pretty good for us last year, it'd be fair to say. Certainly high levels of home ownership, with seven out of 10 Kiwis owning their own homes - they tend to do maintenance, upkeep their homes, they tend to spend on their homes."

Auckland's bubbling housing market, where real estate prices have risen to record levels, have flowed through to the hardware chain's sales, as punters look to spruce up their homes before a sale, while new owners look to change things, Cowie said. Demand for new housing, driven by record immigration flows to Auckland, has also driven a building boom in the city, and contributed to Mitre 10's increased revenue, he said.

Cowie said deteriorating consumer confidence, which rose from a three-year low this month but is still softer than last year, is something the hardware chain was watching closely. Local firms have been gloomier about the economic outlook in recent months as a slump in global dairy prices threatens farm incomes, and prompted the Reserve Bank to start cutting interest rates in June.

"Clearly there are headwinds coming," Cowie said. "Migration is expected to ease, will that take pressure off capacity? I don't think so. We've still got the Auckland challenge for a while. Our unemployment rate is low, and interest rates are low, but certainly consumer confidence drives retail trends and it would appear that's trending down."

Margins remained solid with stable costs, however the sharp decline in the New Zealand dollar would weigh on the chain's buying power, he said.

"We've been pretty focused on margins and making sure we shore up our margins," Cowie said. "The challenge of course going forward with the currency is that there will certainly be some inflationary pressures coming on retail in general, and I'm not just talking our business. However the flip side is the exporters are getting a little bit of relief, but there will be some pressure."

Last month, Auckland-based Carter Holt Harvey, owned by Kiwi billionaire Graeme Hart's Rank Group, flagged that it is considering an initial public offering of its building supplies distribution business Carters unit to list on the New Zealand and Australian stock exchanges. Mitre 10's Cowie said Carter's was a competitor but wasn't a potential target for acquisition.

"We've got a very strong balance sheet and relatively low debt. We have the ability to make an appropriate acquisition if we needed to, but Carters is certainly not part of that, or anyone else for that matter," Cowie.

BusinessDesk.co.nz

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