Surprise bonus from Red Sheds

Ian Morrice said jewellery was the biggest seller for The Warehouse's online retail service. Photo / Richard Robinson

Investors have reacted well to a surprise special dividend from The Warehouse, pushing the retailer's share price to a 14-month high.

At its annual results announcement yesterday the Red Sheds declared a special dividend of 10c a share, on top of the ordinary dividend of 21c.

Analysts said that news caused the company's stock to leap 5 per cent, closing up 21c at $4.25.

Chairman Keith Smith said the extra payout was possible because strong cashflow had enabled the company to distribute accumulated imputation credits.

"In light of economic conditions prevailing during the trading period this is an excellent result."

Commentators said the retailer had performed well overall, improving its inventory position and strengthening its balance sheet.

Operating profit for the year was up over 3 per cent to $125 million, with a rise of 7.6 per cent in the second half.

After-tax profit excluding unusuals was up 5.3 per cent to $85.2 million, compared with $80.9 million last year.

The company incurred a $7.4 million post-tax charge relating to it quitting its fresh food Warehouse Extra business and Cellars bottlestore operation, meaning reported net profit after tax was down 15.4 per cent to $76.8 million.

One analyst said the Red Sheds in particular surprised with its performance, "which being the biggest division and the biggest driver of future earnings growth is important".

The Warehouse stores' operating profit was up 6.6 per cent to $120.2 million, including a $5 million improvement in profit as a result of the exit from fresh food and liquor.

Managing director Ian Morrice said same store sales were down 0.4 per cent, but consumer spending had lifted in the fourth quarter.

There had been a continued double-digit decline in music sales as people shifted to downloading music online, but the jewellery, accessories and footwear categories had grown.

He said this recession had been different from other downturns in that customers had not traded down. Instead they had stopped consuming and picked retailers based on sales.

"Customers have been very attuned to the '60 per cent off this weekend only' type of sales."

Morrice said the Warehouse Extra concept still represented a big opportunity, even without fresh food. The company would be adding the Extra name to 17 of its largest stores and bringing in additional product lines.

As well, its new online retail service had attracted 250,000 registered users and jewellery was the biggest seller.

The disappointing area of the company's operations was Warehouse Stationery, which had a 68.5 per cent drop in operating profit to $1.6 million.

Same store sales were down 7.1 per cent for the period, although this had eased by the fourth quarter to a 1.7 per cent decline.

Morrice said the chain had been particularly hit by a fall in sales of big ticket items such as furniture.