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Shares in The Warehouse Group dived yesterday after the company downgraded its profit guidance by 10 per cent because of deteriorating consumer confidence and retail spending.
After-tax earnings for the year ending July 27 were now expected to be between $84 and $88 million, including a $7.2 million reversal of warranty provisions, down from the previous range of $94 to $98 million.
The announcement sent shares in New Zealand's largest listed retailer into a tailspin, closing at $4.19, down 32c or 7.1 per cent - despite a widely held expectation of a hefty takeover premium should the impending decision from the Court of Appeal clear the way for rival bids from Foodstuffs and Woolworths.
The Warehouse fall helped drag the NZX-50 to a 2 1/2-year low. The index closed 2 per cent lower at 3226.91.
The Red Sheds downgrade followed a similar downgrade on Thursday by Briscoe Group, which saw its share price plummet to a new low of 90c yesterday.
The Warehouse said the main reason for the downgrade was a downturn in consumer spending since late May. It had reduced the company's sales and margin expectations for the rest of this financial year.
May sales for the Red Sheds were 4.8 per cent ahead of last year on a same store basis, with seasonal offerings in apparel and home products proving popular with customers.
But the company said consumer confidence and retail spending had "deteriorated markedly" in recent weeks following increases in fuel and the cost of living. June and July sales were now forecast to fall below previous expectations.
Sales at the Blue Sheds, Warehouse Stationery, have also slumped, with May and June month to date figures tracking 7.7 per cent below the same period last year. The guidance excludes gains on property divestments of around $1.9 million and fair value adjustments associated with electricity derivatives only determinable at balance date.
Deutsche Bank analyst Kristan Walker said the announcement was not a surprise.
The company appears to have tried hard to shift stock, but the boost in sales comes at lower gross margins, he said.
The downturn in the economy has come with the consumer trend of "trading down", said Walker. He said Warehouse suitor Woolworths was already seeing the trend in its New Zealand supermarket business with consumers opting for cheaper cuts of meat and other grocery items.
"That's pretty consistent with what's happening in the US and, to some extent, in the UK."
Another market commentator said the retailer's share price movement has been drifting lower as economic sentiment weakens.
CODE RED
* The Warehouse Group's expected after-tax earnings for the year ending July 27 have been revised down by approximately 10 per cent to between $84 million and $88 million.
* That includes a $7.2 million reversal of warranty provisions, but excludes gains on property divestments of around $1.9 million.
* May sales for the Red Sheds were up 4.8 per cent on a same store basis, but deteriorating retail spending will see June and July sales fall below expectations.
* Sales for the Warehouse Stationery for May and June month to date were 7.7 per cent below the same period last year.
