By Jenny Ruth
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Tuesday 22nd March 2011 |
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The Warehouse Group's second half is likely to remain challenging but a combination of exceptional rural sector incomes, the one-off impact of the Rugby World Cup and favourable growing conditions could begin to lift the economy significantly from the September quarter onwards, says Chris Byrne, an analyst at Craigs Investment Partners.
“We also expect pent-up demand will see a gradual lift in housing market activity from current extremely low levels,” Byrne says.
“While we expect full-year 2011 net profit to decline 7%, the positive effects of sales re-leverage and tax cuts drive full-year 2012 net profit up 9%.”
The group's flagship Red Sheds “struggle to achieve positive sales momentum,” with same-store sales down 2.6% in the six months ended January, and overshadows the recovery of the Blue Sheds where same-store sales were up 7.2% on top of the particularly strong previous first-half sales.
“The key driver of the sales decline remains the ailing fortunes of the CD market and significant price deflation in the DVD and consumer electronics markets,” Byrne says.
The overall CD market probably saw about a 20% decline in year-on-year sales with The Warehouse's decline somewhat less, implying it will end up with a larger share of a smaller market, he says.
Recommendation: Hold.
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