Warehouse says 1H profit will fall as sales miss targets; shares drop

Wednesday 7th January 2015

Warehouse Group, New Zealand's largest listed retailer, expects first half earnings to fall about 20 percent as cold, wet spring and summer weather forced it to discount clothing and other seasonal merchandise at its 'red sheds' general merchandise stores and sales declined at its Noel Leeming consumer electronics chain. The shares fell 8.4 percent.

The Auckland based company said adjusted profit will probably drop to $37 million in the six months ending Jan. 25, from $46.2 million in the year earlier period. The company had previously expected first half profit would be in line with last year.

Warehouse shares are the worst performer on the NZX 50 benchmark index today, following the downgrade. Investors and analysts have said they want the company to produce profit growth this financial year after the retailer spent hundreds of millions of dollars overhauling stores and buying new businesses the past few years. The company, which has previously forecast a rise in annual earnings, will update its guidance when it releases its first half earnings on March 6.

"The combination of flat sales and lower margins in the Red Sheds and lower sales in Noel Leeming have magnified the impact on first half profits compared to last year," said chief executive Mark Powell. "It is not expected that we will see a similar level of decline in the second half."

Costs associated with the rebranding of the company's Noel Leeming and Torpedo 7 chains were one time items that impacted the first half, and wouldn't be repeated in the second half, he said.

Warehouse said the unseasonal spring and summer weather meant second quarter sales and margins at its general merchandise stores missed expectations, particularly in December. Meanwhile, Noel Leeming sales fell compared to the year earlier period when sales were boosted by a switch to digital TV, and as an expected Christmas sales rush "did not materialise".

Shares in the company touched $2.83, their lowest level since Sept. 2012, and were recently down 26 cents at $2.85. Warehouse shares are rated an average 'sell' according to the estimates of six analysts compiled by Reuters.

BusinessDesk.co.nz

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