KEY POINTS:
The Warehouse Group is expecting a lower full-year net profit as difficult trading conditions continue to bite.
It forecast a July year net profit ranging between $94 and $98 million, which included an $8 million warranty provision reversal. Last year it made a net profit of $97.9 million,
excluding one-offs.
The retail group reported yesterday that half-year net profit was up 6.9 per cent to $64.3 million. This included a $7.2 million reversal of warranty provisions relating to the sale of its Australian operations in 2005. Excluding this benefit, net profit after tax was $57.1 million, down 5.1 per cent.
Sales revenue was largely unchanged at $950.6 million, but operating profit tumbled 10.8 per cent from $93.4 million to $83.3 million.
Goldman Sachs JBWere analyst Rodney Deacon said the result was helped by the higher than expected warranty reversal, and a one-off gain from a rebate on interest. But it did not reveal the true impact of a weakening retail environment.
"It wasn't necessarily apparent at the topline but because of these one-offs, you strip those out, the underlying performance actually looks to be relatively downbeat, which is kind of what we'd expect." Forsyth Barr analyst Guy Hallwright said the result was in line with expectations.
"We knew that earnings at both the businesses were going to be down and they were."
Same store sales for the Red Sheds were up 0.3 per cent, aided by strong apparel sales, but the Blue Sheds, Warehouse Stationery, experienced a 1.8 per cent drop.
The Warehouse Extra format had still not proven itself economically, but chief executive Ian Morrice said there were gradual improvements in the three initial stores.
"The Warehouse Extra proposition is about having everything under one roof and we're certainly getting evidence now of increased shopping frequency."
No further Extra stores were planned this year, and the long-term future of the format will be reviewed in early 2009.
Morrice expected the retail environment to remain subdued, with sales performance last month flat in comparison to February 2007.
"It's fairly obvious that inflationary pressures on food, fuel, utilities and other necessities will actually place quite a bit of pressure on consumers' discretionary dollar."
But Morrice said cashflow will remain strong enough to cover any planned capital expenditure such as store refurbishments.
"Whilst the company has some legal proceedings affecting its ownership still ongoing, we're not considering any further capital management initiatives at this stage, but would do so once that legal position is clear."
As a result, the company has lifted its dividend payout ratio from 50 per cent of net profit after tax (NPAT) to 75 per cent.
An interim dividend of 15.5 cents per share was declared, up 3.5c on last year. Shares closed at $6.05, up 5c.
