Warehouse first-half profit rises 22%, beating forecast

UPDATEDWarehouse Group [NZX: WHS], the country's largest listed retailer, beat its first-half profit forecast as investments over the past few years started to bear fruit. 

The Auckland-based company said profit adjusted for one-time items rose 22 percent to $45.6 million in the 26 weeks ended Jan. 31, above its forecast for $43 million to $45 million. 

Revenue rose 8.4 percent to $1.57 billion, and gained 7.1 percent when adjusted for the impact of a later finish to the current half, allowing for extra back-to-school trading. Its operating costs advanced 5.3 percent to $437 million. 

Warehouse, known for its distinctive 'red shed' big barn discount retail stores, has spent hundreds of millions of dollars overhauling its outlets and buying new businesses to drive future growth in the past few years. That investment is flowing through to earnings in the latest period, with gains across The Warehouse, Warehouse Stationery, Noel Leeming and Torpedo7 helping lift the total retail group's operating profit margin by 90 basis points to 4.9 percent. 

"This result, building on the solid performance in the second half of last financial year, shows that the company is delivering on profit growth and on driving returns from the investments made in past years," chair Ted van Arkel said in a statement. "We are confident that the team, under (new group chief executive) Nick Grayston's leadership, will continue to grow sustainable profitability. 

"The outlook for the second half will build on this positive start to the financial year but recognises some of the challenges ahead; notably ongoing currency-driven input cost increases and the fact that there is one week less in the trading period compared to last year." 

Warehouse expects full-year profit excluding one-time items of $61 million to $64 million, which would be up between 7-to-12 percent on last year. It noted the first half of the financial year had benefited from comparison with a weaker year-earlier period when it discounted stock and had higher costs from rebranding. 

Capital expenditure fell to $37.4 million in the latest period, from $58 million in the comparable period a year earlier, as spending returns to more normal levels after completing its store upgrade programme. 

Its shares rose 1.1 percent to $2.84, just shy of the $2.86 nine-month high touched yesterday. 

The company expects to pay a full-year dividend of 16 cents a share, comprised of a first-half dividend of 11 cents to be paid on April 15, and a final dividend of 5 cents. That's unchanged from its payments in the 2015 financial year. 

In the first half, its Warehouse 'red shed' unit increased operating profit 21 percent to $65.5 million as sales increased 4.8 percent while costs advanced 4.4 percent, boosting the operating margin by 90 basis points to 6.7 percent. 

Its Warehouse Stationery unit, known as the 'blue sheds', increased operating profit 26 percent to $6 million as sales and costs both advanced 11 percent. The operating margin rose 60 basis points to 4.4 percent reflecting higher growth in more profitable products. 

Operating profit at the Noel Leeming appliance and technology stores jumped to $6.4 million from $2.3 million as sales increased 15 percent and costs rose 4.1 percent. The company benefited from consolidating some stores, higher rebranding costs in the year earlier period washing through, and says its market share expanded. 

Its Torpedo7 sports chain turned to a $1.7 million operating profit from a loss of $200,000 in the year earlier period as sales rose 19 percent while costs increased 3.5 percent. After the first-half balance data, Warehouse bought the remaining 20 percent of the business that it didn't already own. 

Its finance business widened its operating loss to $2.7 million from $1.4 million in the year earlier period, and is expected to operate at a loss for the next 18 to 24 month as it builds scale in the business. It launched two Warehouse Money credit cards in the first half and five insurance products, and said initial uptake of the credit cards was very positive with early key metrics achieved. 

Warehouse said including the impact of one-time items, first-half profit rose 32 percent to $57.2 million.