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Norman family's James Pascoe buys beat-up Warehouse stock, lifts stake to 5.15%

UPDATEDJames Pascoe, the retail group owned by David and Anne Norman, has taken advantage of a slump in Warehouse Group [NZX: WHS] shares to nudge its holding up to 5.15 percent.

James Pascoe acquired 544,964 shares on market yesterday for about $1.65 million, implying it paid $3.03 a share. Warehouse slipped 0.7 percent to $3.01 on the NZX today and have shed almost a fifth of their value this year. The purchase amounts to only about 0.2 percent of Warehouse's stock, meaning James Pascoe was already close to the 5 percent threshold where a holding must be disclosed to the NZX.

The Norman's retail empire includes department store chain Farmers Trading Co, the Whitcoulls bookstores, Pascoes the Jewellers, Stewart Dawson and Goldman jewellery retailers, and Prouds the Jewellers, Angus & Coote and Goldmark jewellery chains in Australia.

The couple ranked 18th equal on the NBR Rich List last year, with a fortune estimated $500 million, the same value put on the wealth of Briscoe Group managing director and controlling shareholder Rod Duke.

According to their substantial security holder notice, James Pascoe is owned by David and Anne Norman and four family trusts.

The stock was downgraded to 'hold' from 'buy' by brokerage Craigs Investment Partners after the retailer last week cut its full-year earnings forecast because of discounting of seasonal wares.

Craigs analyst Chris Byrne cut his forecast for the retailer's 2014 profit by 12 percent, the 2015 forecast by 6 percent and the 2016 estimate by 5 percent after Warehouse on Friday said its profit would decline from the year earlier and be lower than previously forecast as it cut profit margins at its 'red sheds' stores to move stock. Apparel makes up about a quarter of 'red shed' sales and normally generates higher margins, Byrne said.

(BusinessDesk)


EARLIERWarehouse shares touch 18-month low as stock downgraded to 'hold' at Craigs

Shares in Warehouse Group [NZX: WHS] touched an 18-month low as the stock was downgraded to 'hold' from 'buy' by brokerage Craigs Investment Partners after the retailer cut its full-year earnings forecast, saying it was having to discount winter clothing and homewares because of warmer weather.

Craigs analyst Chris Byrne cut his forecast for the retailer's 2014 profit by 12 percent, the 2015 forecast by 6 percent and the 2016 estimate by 5 percent after Warehouse on Friday said its profit would decline from the year earlier and be lower than previously forecast as it cut profit margins at its 'red sheds' stores to move stock. Apparel makes up about a quarter of 'red shed' sales and normally generates higher margins, Byrne said.

Warehouse, New Zealand's largest listed retailer, is in the process of rejuvenating its 91 'red shed' stores. To expand group earnings, the company aims to grow the 'non-red' side of its business to be as large as the red sheds, having bought 11 businesses in 18 months, adding technology and appliance retailer Noel Leeming, outdoor sports chain R&R Sports and online sporting goods retailer Torpedo7.

"While New Zealand is having one of the warmest starts to winter on record and the 'red sheds' remain exposed to seasonal product lines, the timing is unfortunate given a lack of visibility over the outcome of Warehouse's reinvestment and acquisition strategy and the impact of online retail," Byrne said.

Warehouse shares touched $2.99 today, the lowest level since December 2012. The stock has declined 9.6 percent since Thursday's closing price, ahead of the profit warning on Friday. It was recently trading down 0.3 percent at $3.02, taking the stock's decline so far this year to 19 percent and making it the third-worst performer on the NZX 50 benchmark index this year.

While "recent share price weakness may, in time, prove a buying opportunity, we require evidence of earnings growth to get more positive," Byrne said.

The company's 'red shed' operating margins may have reached record lows, he said.

Warehouse may not be able to sustain its dividend level if it can't generate operating leverage in 2015 and beyond, Byrne said.

In March, Auckland-based 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.

(BusinessDesk)

Comments and questions
7

WHS is a weird combination of businesses these days.

On the one hand, a very mature big box retail business in what is seemingly terminal margin decline as it struggles to find any real competitive advantage in an industry where barriers to entry have come down significantly as a result on online trading and ease of importing low quality goods. Not to mention the trend towards specialist vertical retailers.

On the other hand a portfolio of startup businesses which on paper seem to be a disparate bunch, with no common theme other than 'the internet'. Again, these would seem to require the polar opposite of typical WHS management? WHS are not exactly the nimble start-up managers that spring to mind...

In combination, hardly inspiring stuff from an investment thesis perspective...

Smart move by the Norman family. Unlike some readers of NBR they seem to know something about the cyclical nature of the retail sector.

Why don't you load up in them john? See how smart this looks in 2 years time?

Interesting observation. Please tell me when the "cycle" of intense offshore online retail competition comes to an end. That might be the time to re-buy WHS shares. Somehow I think you will be waiting a while!

Would have loved to have been a fly on the wall at the Board meeting when the downgrade was discussed. Real late, real bad and wonder if they have everything under control? A head must roll somewhere whether it be from bad management or bad forecasting. Ouch.

Truely strange share register
- Tight controlled by Tindall (Wonder if the CEO has more than $100k in delegated authority these days)
- Foodstuffs
- Norman
- Woolies
Shareholder lobbying will be very interesting, with lots of opinions
Don't see how retail shareholders benefit from these holders, the conflicts and the lack of a strong independent management

Very good observation. There are probably two explanations 1) they think WHS are a great growth story and have to be involved or 2) when the end comes they want inside leverage for the carcass carve up.

The Warehouse has lost it mojo, lost its way and is clutching at many web straws hoping ......