KEY POINTS:
Bargain hunters came calling to The Warehouse yesterday in anticipation of a speedy resurrection in takeover activity after hints that the Extra format could be dropped.
The share price climbed as much as 4.4 per cent - despite a 21 per cent fall in full-year earnings - after chief executive Ian Morrice said the company was reviewing the Extra strategy after a tailing-off in its vaunted "halo effect" in the second half of the year.
A halo effect - where grocery customers increase foot traffic and sales of general goods - was central to the Extra format's continuation.
It had begun to emerge at the Red Sheds' Whangarei store earlier this year, giving the Commerce Commission ammunition to successfully argue against the High Court decision allowing Foodstuffs and Woolworths to bid for The Warehouse.
Last month the Australian retail giant sought leave to appeal from the Supreme Court, but abandonment of the Extra format could clear the way for a brisk resumption in corporate plays.
Morrice said yesterday that a decision on Extra's future would be made by the end of next month.
"Good progress has been made, but what is disappointing about the second half in particular is the halo benefits that we were seeing coming through at the end of the first half have actually tailed off and not been maintained."
This had seen it fall short of the year's halo targets, and margins, which had been significantly below expectations, had not been able to offset the shortfall.
Morrice said the company had budgeted for a fourth Extra store this year.
"We're in the process of building the business case for that fourth store and looking at the rollout planned for the Extra format.
"However, the indications are that the rate of return that would be needed to support further investment may not be attainable.
"It's very much under review."
Deutsche Bank analyst Kristan Walker said the signals from the company were not a startling admission.
"We've been thinking for a while that the Commerce Commission was particularly optimistic in thinking that these guys could ever become a third force in grocery retailing."
He would not be surprised if the company decided to step away from the Extra format.
"That's the reason for the rally - I think that people think that there could be a chance that the door may get opened again in relation to [the Commerce Commission's] decision."
The announcement came as the retailer reported a 21 per cent fall in earnings due to a squeeze on the consumer dollar.
Net profit after tax for the year ended July 27 was $90.8 million, down from $114.8 million last year. Excluding unusual items, NPAT was $80.9 million, down from $97.5 million.
Group sales were $1.74 billion, down 1.5 per cent on the previous year.
Morrice said he expected the retail environment to remain subdued over the next 12 months.
A final fully imputed dividend of 5.5c was declared.
Warehouse shares ended the day up 7c at $3.28, after hitting a high of $3.35 during the session.
