Daily ShareChat: The Warehouse Group

By Jenny Ruth

Monday 24th May 2010

The Warehouse Group's third quarter sales, which were down 1.9% on the same year-earlier quarter, were very disappointing, particularly those of its flagship 'Red Sheds', says First NZ Capital analyst Sarndra Urlich.

The Red Sheds' sales were down 2.6% in the quarter and same-store (stores open more than 12 months) sales were down 3.6% (down 3.3% after adjusting for the timing effects of last year's 53^rd trading week).

"The trouble with the Red Sheds, in particular, is that its performance is not only weak but that it is cycling weak comps," Urlich says.

"While poor performance in the context of a recessionary backdrop is excusable, it is somewhat frustrating to see sales weaken even further in the current environment."

The positive story from the results, the 'Blue Shed' stationery chain whose sales were up 2.2% in the quarter with same-store sales up 11.2% on an adjusted basis, contributes less than 5% of aggregate earnings, Urlich says.

"Relative to its peers, The Warehouse looks somewhat expensive from an earnings multiple perspective, particularly when you consider its lacklustre earnings potential," she says.

However, until Australia-based Woolworths, which owns xx% of The Warehouse, "categorically denies its interest in The Warehouse, we believe the stock will not be sold down to any great extent."

BROKER CALL: neutral.

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