Warehouse earnings fall, further weakness ahead

The Warehouse has posted an 8% fall in operating profit, cut its dividend payout by 2c and signaled lower earnings next year as it embarks on yet another reinvestment strategy.

Hampered by falling margins the discount retailer announced a reported operating profit of $114.1 million for the year to July 31, down 8%.

Reported net profit of $77.8 million compared to the previous year’s $60.2 million, which included a $22.8 million non-cash charge.

Adjusted for unusual items the profit of $76 million was down 8.9% on last year.

Total sales fell 0.3% to $1.67 billion, despite a 4.1% lift in Warehouse Stationary sales.

Sales for the second half were $759.8 million, compared to $753.8 million last year, up 0.8%.

Directors declared a final dividend of 6.5c per share, down 2c on last year, taking total dividends for the year to 22c a share.

Chief executive Mark Powell said while the underlying results were down on last year the core business was sound.

The company will implement a new strategy to improve retail execution with significant capital reinvestment in stores, he said.

“I’m confident that our three year reinvestment strategy will deliver positive results but it will take time to build momentum,” Mr Powell said.

The Warehouse earnings are significantly influenced by trading performance over the crucial January quarter with earnings guidance provided post Christmas.

However, the company said earnings for 2012 were likely to fall below that achieved in 2011 and below market consensus due to the short-term impact of the strategic plan and reinvestment programme.

Subject to any material change in the trading environment the company expects adjusted net profit for 2012 to be approximately $70 million with reported net profit of approximately $80 million.

Chairman Graham Evans said: “whilst the general economic outlook for New Zealand supported ongoing improvement in consumer confidence, a number of factors both domestic and international, point to an economic backdrop characterised by continued uncertainty and volatility.

“As such the extent of any underlying growth in retail spending is uncertain and some pressure on earnings is likely to remain in the short term as we work through the early stages of implementing our strategy”.