Covid 19 coronavirus: Warehouse Group forecasts bumper first-half profit

The group, which operates The Warehouse, Warehouse Stationery, Noel Leeming and Torpedo7 stores, expects its gross margin for the half-year will be up circa 170 basis points. Photo / Tania Whyte

The Warehouse Group has upgraded its profit forecast for the first-half of the new financial year, saying its expects to make a profit of more than $90 million.

In a trading update to the market, the retail chain said its original expectation of $70m net profit after tax for the six months to January 31 had been upgraded to more than $90m after a bumper trading period over Christmas, Boxing Day and the New Year period.

"Due to continued strong trading through the week leading up to Christmas and over the Boxing Day and New Year period, and revised expectations for trading in January, the group has upgraded its guidance of adjusted NPAT for the half year," the company said.

The group, which operates The Warehouse, Warehouse Stationery, Noel Leeming and Torpedo7 stores, expects its gross margin for the half-year will be up circa 170 basis points.

It expects its cash position for the half-year to be better than its FY20 year-end total of $168m.

The Warehouse repaid the $68m it received in Government wage subsidies in December after it came under fire from unions, commentators and some politicians, including the Prime Minister, for taking the money, proceeding to lay off staff then reporting a full-year profit of $44.5m.

The group said it had made the decision to repay the subsidies after experiencing strong trading in the lead-up to Christmas.

Without the subsidy, the company would have made a loss of just over $4m.

First-quarter sales for the group increased by 6.3 per cent and now stand up 6.6 per cent year-to-date compared to the same period last year - better than what it had expected.

Full-year guidance and its half-year financial results will be released in March.

Shares in The Warehouse are up 4c, or 1.45 per cent, to $2.70 so far today.

Retail consultant and analyst Chris Wilkinson, managing director of First Retail Group, said the $20m profit upgrade was impressive — and reflected strong spending trends seen across the industry.

"This reflects where a lot of retailers are sitting at the moment, particularly the larger retailers; they have all benefited from strong consumer confidence and that has translated into sales and [increased] profitability," Wilkinson told the Herald.

Less discounting across the sector as a result of supply issues and increases in freight charges, along with sustained strong property values, were driving strong earnings among retailers, he said.

"Large retailers right through to smaller ones are reporting very strong consumer confidence driving foot fall, average sales values are much higher and transaction volumes are up."

Improved efficiency in recent months and years, including reducing its staff numbers and merging Warehouse and Warehouse Stationery stores, was now beginning to pay dividends for the group, Wilkinson said.

Its investment in online and digital retailing in recent years would have also paid off in recent months, he said, adding that there was still more work to be done for the group to realise its full potential.

"The Red Sheds have still got quite a long way to go in terms of transforming their offer, especially given the strong competition from the likes of Briscoes and Kmart."