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Another retailer feeling the economic squeeze

Friday 9th May 2008

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The Warehouse became the second major retailer this week to announce falling sales.

While it is blaming at least part of its downturn on a warm start to autumn, like Briscoe Group on Wednesday it is also feeling the pinch from tight economic conditions.

The Warehouse managing director Ian Morrice today said demand had clearly softened.

"We can see that particularly on higher ticket purchases, for example not just from us but from across the sector."

For The Warehouse Group as a whole sales for the third quarter ended April 27 were down 4.3% from a year earlier to $394.6 million.

Financial year to date sales were 1.4% down to $1.34 billion.

Briscoe managing director Rod Duke this week blamed rising interest rates and petrol prices putting the squeeze on household spending for its first quarter sales being nearly 10% lower than a year ago.

The sporting goods and homeware business warned its first half net profit could halve.

Morrice said part of the reason for The Warehouse's sales decline in the latest quarter was that the corresponding period a year earlier was "very buoyant" for the retail sector.

Also seasonal merchandise had not taken off as quickly as it did last year because the weather had been a little bit milder so far.

"But we remain confident that will correct itself during May and June and basically get the season back on track," Morrice said.
"Since the weather got cooler at the beginning of May we've seen quite a big kick in the sales across that department (apparel)."

He had yet to see any concrete evidence that The Warehouse was benefiting because shoppers were moving to it from more expensive stores.

"But certainly we believe that we're well positioned to respond to a market where consumers have to tighten their belts a bit," he said.

"Whilst some of what we sell is obviously discretionary, quite a bit of what we sell is also the sort of things that people do need to buy, and if they're hard pressed for cash then obviously they're going to save money shopping at The Warehouse."

The signs that sales in big ticket items, such as televisions, appliances and furniture, were slowing had been there in the run in to Christmas.

So far there were no indications of any improvement, "in fact, if anything, there's continuing softening across those sort of categories", Morrice said.

"It's difficult to see any uptick there when people are clearly under as much pressure as they are, and there's a lot of people coming off fixed rate mortgages and the like.

"Those are the first areas people look at to rein back their spending, I think."

Today's figures showed the company's Red Sheds division third quarter sales down 3.5% to $337.6m, with year-to-date sales down 0.8% to $1.19b.

Same store sales for the quarter were down 3.5%.

Warehouse Stationery third quarter sales were down 8.5% to $57m, with year-to-date sales down 6.1% to $153.7m. Same store sales for the quarter were down 7.4%.

Morrice said product availability was improving at Warehouse Stationery but had continued to affect the overall sales performance.

Guidance was unchanged from that given in March for July year net profit in the range of $94-98m, including an $8m one-off gain.

"That's predicated on the fact that although our performance in this quarter has been below our own internal forecasts, we do see the seasonal shift element of it giving us a bit of a recovery of that shortfall in the fourth quarter.

The Warehouse is in the midst of a long-running takeover saga with supermarket operators Foodstuffs and Australian firm Woolworths both having gone to court to contest a Commerce Commission decision barring them from making bids.

The Court of Appeal is considering whether to allow the two companies, which each have around 10% of The Warehouse, to make offers.

Around mid-afternoon, shares in The Warehouse were down 12c, or 2.2%, to $5.38.

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