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Warehouse first half profit gains on year-earlier costs

Friday 12th March 2010

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Warehouse Group posted a 17% gain in first-half profit, reflecting year-earlier costs to close stores while operating earnings weakened.

Net income rose to $57.4 million, or 18.5 cents a share, from $49 million, or 15.8 cents a year earlier, the Auckland-based company said in a statement today. Sales fell 0.5% to $918.9 million.

Full-year adjusted profit will be “similar” to 2009’s $85.2 million, with the non-food retail market expected to improve “gradually” with trading results likely to be dependent on promotions.

In the first half, profit was boosted by the absence of about $11 million of year-earlier costs to close its Warehouse Extra offering. The retailer with the distinctive Red Shed stores and a chain of stationery outlets had already softened up investors to expect flat operating earnings in the first half, announcing on January 5 that the steady sales growth it had anticipated for the peak Christmas trading period “didn’t materialise.”

Shares of the Warehouse climbed 1% to $3.96, the highest since January 18, after the results, which included an increase in the first-half dividend to 17 cents from a year earlier15.5 cents.

Sales at the Red Sheds fell 1.5% to $821 million, while operating profit slipped 3.2% to $78.7 million.

Warehouse said trading margins were eroded by clearance sales of seasonal merchandise. Its operating margin was 9.6%, down from a year-earlier 9.7%. Online sales growth was met the company’s expectations, it said.

At Warehouse Stationery, sales climbed 8.7% to $96.2 million and operating profit jumped 140% to $3 million. The improved earnings reflecting a jump in its operating margin to 3.1% from 1.4%.

A breakdown of sales shows revenue at the Red Sheds suffered in the second quarter, covering November 2 to January 31, declining 1.5% after a 0.5% gain in the first quarter.

Stationery sales climbed 18% in the second quarter after a 3.8% gain in the first three months of the year.

The company will focus on reining in costs and squeeze more earnings out of its existing floor space. It identified apparel, footwear and jewellery, homeware and sporting goods, and ‘everyday needs’ as growth categories.

Businesswire.co.nz

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