The Warehouse Group first-half profit falls as business overhaul continues

The Warehouse Group chairwoman Joan Withers expects full-year profit to be down on last year. (Photo: Jerry Yelich-O'Connor)

The Warehouse Group’s [NZX:WHS] interim earnings and profit are down, as it continues to overhaul the business.

The retail group’s earnings before interest and tax in the six months to January 28 decreased 15.3% on the same period a year earlier to $55.2 million. Retail sales decreased 0.9% to $1.6 billion.

Adjusted net profit after tax was $37.7 million, above its January guidance range of $32-35 million but down 16% on the same period the year before.

Chairwoman Joan Withers says the group’s primary focus in the first half was to “relentlessly trade the peak retail season” while focusing on its transformation agenda.

“With a strong team now in place and support from external experts, we are confident we can successfully execute our next major change agenda in 2018 to drive improved performance.”

The group has embarked on a three-year strategy to lift profitability, by removing the complexity and cost of an inefficient operating model.

The core Warehouse ‘red sheds’ reported sales of $940.1m, which was down – as expected – from $975.1m in the first half of 2017, due to changing the pricing and product strategy, which meant a reduction in average selling price.

Red shed ebit was down 17.6%, reflecting increased logistics costs for higher unit volumes and employee cost increases. Same-store sales decreased 3.6% in the half.

The Warehouse Stationery ‘blue sheds’ reported sales of $129m, down 7.1% on the period before. Operating profit of $3.7m decreased by 43.4%.

Management says the operational integration of the blue sheds into the red sheds caused some “internal systems and process challenges,” which, when coupled with a softer trading performance in key categories, saw a sharp decline in performance for the business.

“The return to more normal performance levels is a key focus for what has been historically a very strong performer for the group.”

Noel Leeming reported first-half sales of $453.9m, a 7.5% increase on the same period last year. Same-store sales increased by 5.1%.

Operating profit for the half was up 65.7% to $15.3m, helped by a $2.7m one-off change in accounting treatment of supplier-funded store fixtures.

Torpedo7 Group reported sales of $88.6m, up 2.5% on the first-half of 2017.

Operating profit of $800,000 decreased by 68.0%, as clearance of aged stock and changes in product mix impacted margins, and efforts to increase brand awareness for the offline retail drove cost expansion.

Legacy issues were tackled over the period, including addressing inventory and sales issues within the Number One fitness and Shotgun supplements divisions of the business.

The board expects the second-half performance to be similar to the same period in 2017, with adjusted net profit after tax for the year expected to be between $50-53m, representing a 22-25% profit decline year on year.

A 10c a share interim dividend was announced. The final dividend will be announced at the full year, as the board plans to review the group’s dividend policy, following last year’s sale of the financial services business.

The stock has fallen 21% to $2.02 over the past 12 months.   


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16 Comments & Questions

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Sell out to Aldi Nord.

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Time for the Norman family to make a takeover offer and run this company properly

How many restructures and new strategies do they need to turn this old dog around?

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You're dreaming if you think the Normans could turn TWL around. The Normans run 40-60%+ GP business' with high price points, there is no way TWL could maintain that sort of margin given the price competition on the products they sell.

The reality is that retail in NZ is a tough, tough business; made tougher with the easy margin products disappearing to Amazon and AliExpress.

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Well the Normans obviously think they can as they have already accumulated an 18.36% stake in The Warehouse and can probably get Foodstuffs 2.99% stake also.

Maybe the Normans like many people have worked out that the Warehouse current model is dead and have a revised model that they could implement.

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Business overhauls, restructurings and new strategies - that has been the annual story from The Warehouse since 2011 when Mark Powell took over from Ian Morrice!

Like a rocking chair moving up and down vigorously on the same spot, The Warehouse generates a lot of movement but has gone no where.

Meanwhile, it is clear the company has been selling down its property assets (sale & leasebacks) to bolster profits and pay dividends. Akin to ripping up the floorboards to keep the fireplace going to keep warm!

Proof?

Lease commitments :

2017 $739m
2010 $180m

Lease commitment for next year :

2017 $120m
2010 $52.7m

WHS has effectively been paying dividends from selling its future profitability.

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Totally agree with you re constant restructurings within The Warehouse group itself since 2011

That is why a new owner with a better proven retail record like the Normans or another successful retail group is the answer. They will have a different and more successful model to turn this old dog around.

I can't work out why Stephen Tindall is allowing his baby to sink and also continually diminish his shareholder wealth

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TWL restructuring programme has been the longest in corporate starting with Greg Muir and going on and on and.....................................................

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As long as they continue with the ridiculous policy of asking Customers, "Would you like a few bags at 10c each ?" ......I'll never shop there again.

My first and last experience at *The Warehouse*, was having to walk back to my car carrying $237 worth of makeup tucked under my arms! It would never happen at *Farmers* !

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I can understand not getting a bag if you only have a couple of small items. But if you have a lot of things, and obviously need one to carry it all in, you should just be given one without having to be asked. That's just common sense. But therein lies the problem, did the person serving you have any? Let's face it not everybody has it.

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You are sooo right there Ivan. It really is about the *total customer experience*. Mind you, I do believe they pay their staff peanuts.

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Get rid of the Board
Hopeless
Boards just figureheads and waste of money
Withers ?? wasn't she involved with the Feltex debarcle ???

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Yes she was, and despite that she went on to win the businesswoman of the year award, thus making all the females in the country very happy little campers.

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This outfit is headed for the dogs.
Several bad chairman including the one they have now have not been anywhere near good enough to turn this outfit around.
The model they operate with is long dead and they are playing to the whole section of the market.
either get a grip now or it will be late if you leave Whithers in charge any longer
The custom base is poor and getting worse so why ever would you base a business model on that.
Whithers cannot and will not make a scrap of difference except to hasten the demise.

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Maybe not good for shareholders, but as a customer I got a bargain today.
A plant that I had seen at other garden/hardware stores which I was not happy paying their price for, (none were less than $20), was on clearance for $5, so I bought 4:)

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The Reality is a weak board too willing to listen to the internal American based hype and not action the reality, Stephen Tindall has stepped out completely and spending his well earned money supporting the Americas Cup, and a senior management team made up of Luddites from failed American retail sectors. The consistent transformation, the chicken little fear of Amazon (which still hasn't turned into a reality), and an ever changing strategy developed by extremely well paid executives that have no connection to Warehouse customer base - or made any attempt to. Redirecting all their spend into Technology, based on fear tactics from within, and under-investing in the stores where the customers are is fundamentally flawed, has proven to be consistently and still nothing changes at the top. Can only see the share price continue its decline.

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I work for the warehouse as a drone. A lot of comments are correct and very interesting. There is definatley something up. Im guessing a takeover as we arent holding as much stock, have all been surveyed about what kind of workforce we are. Watch this space

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