The owners of James Pascoe Group now hold a 19.7 per cent stake in The Warehouse. Photo / Stephen Parker
The owners of James Pascoe Group now hold a 19.7 per cent stake in The Warehouse. Photo / Stephen Parker
James Pascoe Group owners Anne and David Norman have lifted their stake in The Warehouse but analysts say it does not signal a takeover attempt - at least not yet.
The couple has bought 265,539 shares worth $540,707, increasing their controlling stake to 19.7 per cent from 18.6 per cent.
The Normans took their initial stake in the company in the middle of 2014 and have been steadily increasing their shareholding since.
The Warehouse Group's share price is down 30 per cent since the Normans first bought its shares. This is the first purchase of more shares since 2016.
Craigs Investment Partners senior research analyst Mohandeep Singh said the increase in shareholding indicated the Normans see value in The Warehouse but did not signal a takeover attempt.
"Their total holding is over 68 million shares so it is only a drop in the ocean, another one per cent," Singh said. "It doesn't materially move the dial in terms of if they [do] have a bigger game plan."
Singh said the Normans were likely taking advantage of the retailer's "cheap" share price, currently trading at $2.06.
The Tindall Foundation and founder Stephen Tindall combined own 48 per cent of The Warehouse shares - a blocking stake, even if it did want to take the retailer over, he said.
Adding The Warehouse Group to James Pascoe Group's retail empire of Farmers, Whitcoulls and Pascoes, could be seen as an attractive option, Singh said.
"The Warehouse is the [country's] biggest retailer and has a massive distribution network throughout the country so it would be attractive to anybody who wanted to come into the space because you would get some scale advantage," he said.
The Warehouse's third-quarter sales advanced 2.6 per cent overall but sales for "Red Sheds" and "Blue Sheds" (Warehouse Stationery), the key profit-drivers for the business, were down.
Red Shed sales were down 2.8 per cent and Blue Shed's down 5.1 per cent. Sales for Noel Leeming were up more than 10 per cent, Torpedo 7 sales were up more than 6 per cent.
"Noel Leeming and Torpedo 7, the profit margin they make is about half what the Red Sheds and the Blue Sheds make. From a revenue perspective it looks good but the margin is a lot lower on those two brands," Singh said. "The profitable parts of the business are those Red and Blue Sheds and their sales are declining."
The retailer's move to an everyday low-pricing model, part of its transformation programme, was partly responsible for that, Singh said.
"At the moment, it's the low-margin businesses of Torpedo 7 and Noel Leeming that is driving sales for the group."
Its current transformation "strategy refresh" is the group's third in 10 years.
"They have had a few goes at these refreshes and they have disappointed," Singh said.
"I don't think you can blame the market for being a little bit skeptical about the potential for this one to work. Over the past 10 years earnings are down 25 per cent in a period where it's done a lot of strategy refresh and spent $200 to $300 million in the last five years alone to try to get the business moving."
The Warehouse said benefits of its transformation will begin to be seen in 2019.
Retail analyst Chris Wilkinson said The Warehouse's performance was a concern but it was natural that the Normans would be interested in the retailer.
"With the rapid changes in retail they will be looking for plan B and plan C.
First Retail Group managing director Chris Wilkinson. Photo / Mark Mitchell
"The future of retail relies a lot on being able to reduce costs, being able to get efficient supply chains, being able to secure volume and owning large parts of the market," Wilkinson said.
Its poor performance could be put down to its stores lacking "aspiration" and an competitive edge, Wilkinson said.
"Their stores, in comparison with competitors like Kmart, are looking increasingly bland. The challenge for them is, whilst they may look to put in some more contemporary ranges and even if they got the buying right, their shop environment doesn't match what's being delivered elsewhere in the market.
"You can understand why consumers are looking elsewhere."
Hiring more executives from the US to lead the company was also not proving to be in the company's best interests, Wilkinson said.
"The American retail market is in significant distress, and so the last thing we want to see is a replication of that in New Zealand," he said.
"The retail sector had high hopes for The Warehouse with some of the changes that were happening but in actual fact, if anything, it seems to be heading down the same track - we're starting to see the same signals in terms of what they are delivering."
