The Warehouse Group is due to report its half-year financial results on Wednesday.
The Warehouse Group is due to report its half-year financial results on Wednesday.
New Zealand’s largest retailer The Warehouse Group is due to report its half-year result on Wednesday and all eyes will be on how much pressure it is coming under given the tough retail environment.
Jarden analyst Guy Hooper says The Warehouse was one of the few retailers thathad not provided a trading update, which meant there was limited insight heading into the result.
“But when you look at the broader industry stats it is pretty clear it is a tough consumer environment.”
Hooper said areas that stood out as being under pressure were appliances — sold via its Noel Leeming business and bicycles through the Torpedo 7 business, which it has sold for $1.
“The Red Sheds tend to target a lower price point. If you see any trade down they can often benefit in terms of the sales side. They have also got a growing grocery part of it. The sales side of The Warehouse could be okay at a headline level but when you dig in and look at gross margin dollar contributions, that’s where things could start to get messy — particularly on a higher operating cost base.
Fresh off the back of selling Torpedo 7, there have also been calls for The Warehouse to jettison The Market — it’s online shopping site.
Hooper said at the last result, The Warehouse had signalled the operating drag from The Market should decline from there.
“What we will be looking for is a lower operating loss. But if not, then we will be looking for additional detail around the strategy and longer-term plans for that business. “
Shares in The Warehouse are down more than 47 per cent over the past year and opened on Thursday at $1.33.
A warm winter meant more of a struggle for Kathmandu. Photo / Nick Reed.
KMD Brands
The other retailer due to report is Kathmandu owner KMD Brands on Tuesday. Last month the retailer provided a trading update showing a 14.5 per cent drop in group sales to $469 million in the six months to the end of January, which saw its share price fall sharply.
Hooper said he would be looking for more detail on how individual brands have been tracking.
“We know that Kathmandu has had a greater struggle coming out of what was a warm winter into a tough consumer environment, where as Rip Curl has performed much better.
“It would be good to get an update on the brand health of Kathmandu and then for Rip Curl what the inventory sell-through has been in the wholesale market and whether we can expect some more normal wholesale channels over the next 12 months.”
Hooper said it wouldn’t surprise him if none of the retailers provided firm guidance because of the consumer backdrop.
“But what we would expect to see is a trading update — they are all going to be almost two months into the current period so some indication of how trading has gone and the direction of trade.”
Hooper said it was around March/April last year when consumer spending started to slow.
“While we are not expecting a big recovery in the consumer by any means over the next 12 months, the comparable period should start to get easier because you are cycling the beginning of the weakness.”
Hooper said it was hard to know when things would get better for retailers.
“It’s crystal-ball gazing to a certain extent. What would expect to see from a retail point of view is they should start delivering positive sales growth, if not positive earnings growth, in the second half of this year mainly because you are starting to cycle a weak prior period.
“When you look at the consumer price pressures, it does feel like a lot of them have peaked.”
For example, home mortgages were still re-fixing on higher rates but the differential was now lower than it was 12 months ago.
Chemist Warehouse was launched in New Zealand in 2017.
Could Ebos lose its NZ Chemist Warehouse contract?
Fresh off losing its Australian supplier contract with Chemist Warehouse Ebos is being warned by Forsyth Barr analysts that it could be at risk of losing its NZ Chemist Warehouse supply contract in FY27.
Chemist Warehouse currently has about50 stores in New Zealand. Forbar analysts Matt Montgomerie and Benjamin Crozier say this has the potential to grow to 100 or even 150 stores.
But Chemist Warehouse’s recent proposed merger with Sigma Healthcare means it it is likely to become a healthcare wholesaler, distributor and retail pharmacy franchisor all in one. Ebos revealed last year it would lose its Australian supplier agreement with Chemist Warehouse from June this year to Sigma.
Montgomerie and Crozier believe the New Zealand contract with Chemist Warehouse could also be at risk.
“Given the continued CW [Chemist Warehouse] expansion in NZ and proposed merger, it may become more economically viable for SIG/CW to invest into its NZ supply chain. Much like the CW Australia contract, we take comfort that feedback suggests EBO’s service levels continue to be robust, but the risk of contract loss can’t be ruled out.”
They estimate the contract is worth around 2 per cent of Ebos’ FY24 group earnings before interest and tax and say even if Ebos were to lose the contract the company should be able to absorb it.
Ebos’ current New Zealand contract with Chemist Warehouse runs until December 2026.
Pharmacy market consolidation?
The analysts also point to profitability in the New Zealand pharmacy sector being under pressure making it ripe for acquisitions.
“CW accounts for ~20 per cent of NZ pharmacy sales while representing only ~4 per cent of stores. Unlike Australia, NZ only has one large pharmacy group outside of CW (Greencross), whose number of stores and profitability per store has been declining.
“There is a chance CW grabs a larger share of the overall NZ market than it has in Australia. Should this occur, and EBO loses the NZ contract, it could change the environment for EBO’s NZ pharmacy wholesaling business.”
Forsyth Barr’s research shows Chemist Warehouse has already had a major impact on the sector. Since it entered New Zealand in 2017 there has been a 24 per cent decline in operating profit per pharmacy.
Outside of CW New Zealand only has one large pharmacy group — Greencross Health, which owns Unichem and Life Pharmacy chains.
Jarden wealth sale
The sale of Jarden’s wealth and asset management business is a step closer after the majority of shareholders voted in favour of the deal. The wealth arm is set to be combined with National Australia Bank’s wealth and advice management business under a new brand called FirstCape.
Jarden will own a 20 per cent stake in FirstCape which will include Jarden Wealth, Harbour Asset Management as well as NAB’s JBWere NZ and BNZ Investment Service.
The new business will have 113 advisers and $29 billion in funds under advice and administration and $15b in funds under management including $5b of KiwiSaver funds.
The deal is expected to be finalised by the end of April. Incoming FirstCape CEO Malcolm Jackson said while the businesses were being bought together nothing would change for the clients of JBWere, Jarden and BNZ.
