Warehouse expects first-half earnings to fall by up to 28%

Warehouse chair Joan Withers says many of the operational impacts on profit performance are "transitional in nature"

Warehouse Group expects first-half adjusted earnings from continuing operations to fall 22-to-28 percent as it keeps investing to transform the business.

The Auckland-based company said first-half adjusted net profit from continuing operations will probably be $32 million-to-$35 million, which "includes a significant accrual for a redesigned incentive programme, intended to reward better than expected financial performance along with reinforcing specific behaviours necessary to execute the transformation."

Excluding the accrual, chief executive Nick Grayston said the performance would be similar to the prior year when first-half adjusted earnings fell 13 percent to $39.7 million, falling within the guidance range of between $38.5 million and $41 million.

Under the leadership of Grayston, who took over from Mark Powell in December 2015, Warehouse has embarked on a three-year strategy to lift profitability by removing the complexity and cost of an inefficient operating model and reshaping the company's physical footprint to support the digital business.

That included the sale of its financial services firm to a subsidiary of SBS Bank for $18 million last July after an unsuccessful foray into consumer lending, booking $40.1 million of associated impairment charges through the 2017 financial year.

The retailer said Warehouse Stationery, or 'Blue Sheds', is preparing for the peak back-to-school season but expects first-half sales to fall some 6.5 percent based on softer performance of communications and technology segments, and the one-off impact of the integration of the Blue Sheds' business into the core Red Sheds operating systems at the start of the financial year. Noel Leeming continues to perform strongly and Torpedo7 retail has been steadily improving during the year

"While we are all keen to start delivering the benefits of our transformation, we have a long way to go, but these are encouraging signs. H1 trading to date has confirmed for us that our customers like and have responded well to our pricing and product changes. We continue to invest in technology and build out the team to execute the next steps in our change programmes," said Grayston.

Chair Joan Withers said many of the operation impacts on profit performance are "transitional in nature" and not expected to recur. However, "the Warehouse Group is in the process of a fundamental transformation to improve performance and profitability, which is our key focus for 2018," she said. Full year guidance will be given when it reports its first-half results on March 8.

Warehouse said the Christmas trading period demonstrated an "improving trend," despite the radical shift in the go-to-market strategy at its Red Sheds. Same-store sales fell 2.8 percent compared to the first quarter. Year-on-year unit sales showed an increase of 5.1 percent with transactions rising 2.9 percent in conjunction with strong sell-through of seasonal lines, it said.

The retailer said the change in its pricing strategy to "every day low price," coupled with a one-time reduction in ranges and consequent clearance activity has resulted in a reduced average selling price. "However, margin rates on current products have generally improved, and customers' reaction to the pricing changes and product improvements have been very positive," it said.

The stock recently traded at $2.11 and has dropped 24 percent over the past 12 months.

(BusinessDesk)


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Yet the NZX market update ( PR spin? ) begins as follows -

Auckland, 11th January 2018

The Warehouse Group confirms improving trajectory after encouraging Christmas trading.

NBR headline seems more accurate....

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What a sad joke The Warehouse has become

Grayson is two years into a 3 year transformation after two previous failed transformations.

Time for the Norman family interests to take it over

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Time also to stop asking customers.... "Would you like a bag?"
How else did they think was I going to get my $237 worth of make-up out to the car?? Last time I'll go back until they reverse that ridiculous policy.

So c'mon Joan.... I'm sure you understand.

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Either the Normans or Rod Duke would and/or are doing a better job.

Time for Aldi to take it over, and give NZ consumers a fairer deal at the supermarket. There's probably justification for Government involvement in this takeover, given the various subsidies and benefits would go a lot further.

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Yes, because the Farmers Trading Company is an absolute beacon of retail success.

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Yes because the Farmers, Whitcoulls, Pascoes, Stewart Dawsons, Goldmark and Stevens in NZ and Prouds and Angus and Cootes in Australia are all well run and private companies

The Normans business model is very sustainable and not dependent on the greed of external shareholders - they can invest for the long term and weather any storm that comes their way

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Like a 1975 Austin Cambridge, directors keep tinkering with the Warehouse by changing the tyres, exhaust pipes, fuel etc but the basic body shape and engine have not changed.

Meanwhile, the group keeps selling its real estate via sale and leaseback deals to keep paying dividends. Good for today but the lease commitments building up are getting rather burdensome.

Inevitable the Warehouse will get consigned to history as yet another retailer who failed due to its inability to change with the times.

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Best summation of their business plan I have read.

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If you have a 1975 Austin Cambridge then it is worth a motza as production of the car stopped in 1969.

And like the Warehouse it is always recommended to strip it down and cut the rust out of the chassis before rebuilding.

And like the Warehouse after all that rebuilding you may still be disappointed with the results,

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the prices there aren't much different from other stores

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Felt it was a big mistake SBS taking over offloaded Warehouse Money - time to move my funds.

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Imagine what will happen to the WHS if Amazon decides to launch in NZ.

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I don't get it. A failed chief executive who has surrounded himself with other failed executives (all from off-shore / Sears it seems), a continued downward trend in sales and profits, a sell off of assets to make the books look good, a digital transformation that seems all talk and no show, a top employer of New Zealanders that now seems to be a workplace to avoid (would love to see their turnover for last year), and the unashamed arrogance to announce a executive incentive scheme to line the pockets of those driving these wonderful results!
No wonder Sir Stephen has backed out of Board duties to focus on something progressive.
The Warehouse would make a great business study on how to take a leading NZ business and drive it into the ground.

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I find it strange to blame reduced earnings on a new management incentive scheme that is "intended to reward better than expected finance performance" - something has gone wrong there either in the scheme design or the comms.

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I struggled with that as well. Are they saying that they hadn't booked enough before the redesign of the management incentives, that they've lowered the targets to make it easier to achieve bonus thus requiring a catch-up on the accrual or something else. WHS will struggle but the board need to get on top of management and REALLY hold them to account.

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Left alone to transform itself any more and it will be the completion of an absolute disaster.
The management of this outfit should be ashamed of itself .
The whole performance has been a collective rout by so called new CEO with all the experience needed to transform this into a profit making business.
For gods sake it could not even run a loans business without loosing money....how the hell do you do that.
As for putting Withers in head seat at the board....that will prove a dreadful mistake.......just watch this space.

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An Australian Aldi would comfortably fit in say a Whitcoulls store - it'd be only a small portion of The Warehouse ones.

The arrival of Amazon Oz was a disaster, nothing of interest at all, a pointless move because of a tiny range offered.

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There's a good range of skills on the Board, but I wonder if they really know who their customers are any more. The Warehouse used to make nice things available to low income families; now it looks like a jumble sale. Low income families have a lot of "jumble" to choose from--what is the real mission of the company now, and how is that expressed on the shop floor?

I liked the bag comment, above. Don't ask, just do it--but make the bag recyclable and sturdy. And don't ask for donations at the time of checkout--many of the people at the checkout might need assistance, rather than being asked to give it. There are better ways to support charities.

Treat your customers really well at the coal face. They might not be wealthy, but they are valuable.

Again, know your customer.

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I don't like being hit up for a donation each time I go thru the checkout.It won't bother rich folk, only us poor folk

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