MARKET CLOSE: Shares fall, led by Warehouse after profit warning
New Zealand stocks fell, led by Warehouse Group after the country's largest listed retailer cut its full-year profit forecast.
The NZX 50 Index slid 47.122 points, or 0.9 percent, to 5145.032. Within the index, 38 shares fell, seven rose and five were unchanged. Turnover was $227 million.
Warehouse was the worst performer on the benchmark, dropping 7.8 percent to a 17-month low of $3.06. Warehouse said it expects adjusted full-year profit of $59 million to $62 million, down from its March forecast for $67 million to $71 million, and lower than last year's $73.7 million.
Warehouse, which makes about 70 percent of sales from its 'red shed' general discount stores, said it was selling seasonal stock at reduced margins to avoid having too much left at the end of the season. The company, which is acquiring other businesses in an attempt to grow earnings outside of its 'red sheds', said Torpedo7, which is being integrated with R&R Sport, No.1 Fitness and Shotgun.co.nz, also failed to meet profit expectations as sales lag forecasts.
"Clearly Warehouse has been the focus of attention today," said Rickey Ward, NZ equity manager at JBWere in Auckland. "Investors are trying to figure out if it is confirmation that the 'red sheds' is mature and therefore confirmation that their diversification strategy away from the reliance on that is prudent."
Financial analysts who follow the company will probably pare back their forecasts for the company's 2015 profit from about $78 million to closer to $70 million, Ward said. Concerns are also growing that the company's dividend may not be sustainable, he said.
In March, Warehouse committed to a minimum dividend of 19 cents per share over the next two years as it moves to a lower payout ratio of between 75-85 percent of adjusted profit, from a previous policy of 90 percent of adjusted profit.
The company is likely to be paying out more profit than it earns, Ward said.
Other stocks on the bourse have declined as investors realised profits heading into earnings season on concern about whether valuations are justified, Ward said.
"The market has had a weaker tone across the board," he said. "Some stocks that have performed pretty well over the last couple of days are giving up some of those gains. There is a bit of profit taking going. You are coming into result season in just over a month and people are starting to question the valuations so I think there is a bit of a 'risk off' mentality going on in the market at the moment."
Diligent Board Member Services fell 3.7 percent to $4.40 after the governance app maker posted a 58 percent rise in first quarter profit as it increased the number of Diligent Boardbooks users. The stock closed at a 7-week high yesterday ahead of the earnings release.
PGG Wrightson gained 1.2 percent to a week high of 42 cents after the rural services firm late yesterday said full-year earnings exceeded its guidance even in the face on unfavourable weather and announced the $30 million purchase of a company that owns properties it leases.
Fletcher Building, the largest New Zealand company on the benchmark, dropped 1.9 percent to $8.82. Telecom Corp, the nation's largest telecommunications company, slid 0.7 percent to $2.68.
OceanaGold Corp led gainers, up 11 percent to $3.75.
Off the market, Scales Corp, the fruit and vegetables logistics group, said it is seeking up to $186.5 million in a July initial public offer, which aims to raise $30 million of new capital and let its major shareholder, private equity firm Direct Capital, sell down its stake. The Christchurch-based company will sell up to 100.8 million shares at an indicative price range of between $1.60 and $1.85 per share.