Warehouse lifts annual earnings 12%, pipping guidance, as cost cutting improves margins

Friday 23rd September 2016

Warehouse Group lifted annual earnings 12 percent, just beating the top end of its guidance, as the country's largest listed retailer eked out bigger reductions in its cost base to widen operating margins.

Adjusted profit rose to $64.1 million in the 52 weeks ended July 31 from $57.1 million a year earlier, the Auckland-based company said in a statement. Revenue increased 5.6 percent to $2.92 billion with sales growth across all of the retailer's brands. Gross margins shrank due to its Noel Leeming group lifting sales of low-margin consumer electronic goods, however, operating margins widened to 3.8 percent from 3.4 percent as Warehouse focused on stripping out costs.

Net profit rose 49 percent to $78.3 million, or 22.6 cents per share.

Chief executive Nick Grayston said the board has approved his three-year strategy which will focus on lifting profitability by removing "complexity and cost" of an inefficient operating model and reshape the company's physical footprint to support the digital business. The group's online sales rose 22 percent to $185.8 million, accounting for about 6 percent of total revenue.

"The improvement in the financial performance of the group demonstrates that the trading strategies are delivering results," Grayston said. "Our task is to ensure that the business is a strong and profitable competitor in the future retail environment, which will look very different from the traditional retail business model that has served us so well to date."

Warehouse spent hundreds of millions of dollars overhauling its outlets and buying new businesses to drive future growth in the past few years under the leadership of Mark Powell, and Grayston, a former Sears Holdings executive, took over in December.

The board declared a final dividend of 5 cents per share, payable on Dec. 8 with a Nov. 25 record date. That takes the annual return to 16 cents, unchanged from a year earlier.

The shares last traded at $2.90, and have increased 8.6 percent this year.

The company's flagship 'Red Sheds' stores lifted sales 2.5 percent to $1.76 billion for a 12 percent increase in operating profit to $79.6 million, and the blue shed stationery chain increased sales 6.2 percent to $279.2 million with profit up 12 percent to $14.3 million as better sourcing helped widen margins for both units.

Noel Leeming profit jumped 88 percent to $12.1 million on a 13 percent increase in sales to $752.1 million, grabbing market share with the collapse of consumer electronics chain Dick Smith, while ceding margin due to the increased volume of consumer electronic goods being sold.

Torpedo7 boosted sales 13 percent to $148.7 million for a profit of $3.4 million, building on the breakeven result it achieved a year earlier, while the launch of its financial services unit reported an operating loss of $3.4 million, which Warehouse said was in line with expectations.

BusinessDesk.co.nz

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