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The Warehouse Group is expecting first-half profits before one-offs to match last year's $56.8 million, despite a 2 per cent fall in sales over the important Christmas trading period.
Same-store sales for the Red Sheds in the 10 weeks ending January 4 were down 1.9 per cent compared with the same period last year. Total sales were down 2.5 per cent, but margins were maintained at last year's levels.
Chief executive Ian Morrice was pleased with the result, given the difficult trading environment. Market share grew, he said, in spite of strong competition.
Warehouse Stationery same-store sales were down 9 per cent for the period, with total sales down 9.4 per cent.
However, Morrice said the crucial Back to School sales period was still to come. "Operating margins are under pressure due to sales deleverage [falling sales] but robust cost-reduction measures are in place to help offset this."
He expected adjusted group net profit after tax for the six months ending January 25 to be similar to last year's adjusted net profit of $56.8 million before costs associated with electricity derivatives, and the exits from the Extra and Cellars formats. The outlook remained uncertain as overall consumer spending was expected to remain weak.
Mark Lister, head of research at ABN Amro Craigs, said the Christmas trading result was better than expected, given the weak retail environment and consumer belt-tightening.
"I'd probably be quite pleased with that."
The Warehouse has made mention of its historically strong performance in recessionary times - cementing its brand in the psyche of New Zealand consumers in the 1990s when economic conditions were tough.
Growth in the new century, however, has been less rapid, and ventures into Australia, food retailing through the Extra format and liquor retailing through Cellars, were aimed at achieving new growth. Those have now been abandoned in favour of a refocus on its core strength, with a plan to open up to 15 new, smaller-format Red Sheds over the next five years.
Lister said the latest result indicated that the company was benefiting from consumers trading down, possibly at the expense of more upmarket retailers.
"They're not going to be immune to it - they're still going to suffer for the fact that when consumer spending slows, it slows, and everyone who's exposed to that sector will be impacted.
"But they will certainly be impacted less than someone selling big-ticket items or highly priced luxury items."
Another analyst, who asked not to be named, said the result was ahead of their projections.
"It's mildly positive the sentiment, but that said, what's driving this stock is M & A speculation. We're still waiting to see what Woolworths' next move is."
The abandonment of Extra last October prompted Woolworths to withdraw its challenge to the Commerce Commission ruling stopping it taking over The Warehouse. But the Australian giant has not made any moves since to restart the takeover process.
Shares in the Warehouse closed at $3.58, up 10c on light trading volumes.
