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Warehouse warns margin squeeze, investment programme will trim first-half earnings

Friday 22nd November 2013

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Warehouse Group, the country's biggest listed retailer, expects lower first-half earnings as margins at its flagship Red Sheds come under pressure and it spends more on adjusting to a new competitive environment.

Adjusted net profit after tax is expected to be below $46.7 million in the first half after sales growth at its Red Sheds in the first quarter didn't translate into larger earnings. Also contributing to a more muted performance outlook is the retailer's investment in an expanded online presence and a series of acquisitions, retiring chairman Graham Evans told shareholders at today's annual meeting in Auckland.

Annual earnings are expected to beat last year's $73.7 million, but by less than previously thought. The company will give more detailed guidance after the Christmas trading period, he said.

"While we were anticipating adjusted NPAT in the first half of FY14 to be in line with the first half of FY13, the gross margin pressure we commented on in our Q1 sales release and our continued investment in the business is likely to result in the first half FY14 adjusted NPAT falling below the first half of FY13," Evans said in speech notes published on the stock exchange.

"We are still expected adjusted NPAT for the full year of FY14 to be above the full year of FY13, although by less than we had initially expected," he said.

The shares fell 3.1 percent to $3.74 today, and have climbed 29 percent this year. The stock is rated an average 'hold' based on seven analyst recommendations compiled by Reuters, with a median target price of $3.75.

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

Part of that realignment saw Warehouse buy the Noel Leeming consumer electronics goods chain and online retailer Torpedo7 last year.

Warehouse wants to build its non-Red Shed units, including its Warehouse Stationery business, to account for about half its profits and is still looking at other opportunities to grow its business.

Evans said New Zealand's retail environment is still uncertain and volatile, though there are signs of improving consumer confidence.

"We expect we will see gradual on-going improvements in consumer confidence and spending further supporting the recent retails sales growth trend," he said.

Government figures this month showed a smaller lift in consumer spending in the September quarter than economists had predicted, owing to declines in apparel and department store sales.

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