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

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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