Covid deaths pass grim milestone, more than 20,000 new cases. Video / NZ Herald
The Warehouse Group says its $5 million drop in half-year earnings is not a bad result given it had footed expenses in excess of $15m to manage Covid and related disruption.
The retailer, which owns The Warehouse, Stationery Warehouse, Noel Leeming, Torpedo7 and e-commerce store TheMarket, posted a net profitof $50.4m in the 26 weeks to January 30 compared with $55m in the same six months a year earlier.
Its sales fell 4.3 per cent to $1.73 billion in the six months, although sales in the second quarter rose 2.8 per cent to a record.
Group online sales grew 67.8 per cent and accounted for 19.4 per cent of total sales, while click and collect sales grew 79.1 per cent. Its gross profit margin, however, fell 150 basis points to 34.7 per cent, which the company attributed to disruptions in its supply chain and rising ocean freight costs.
This is the first half-year reporting period in five years that the company has reported a decline.
The company's Auckland stores were closed for 46 per cent of total trading days and the stores in the rest of the country closed for 23 per cent of trading days in the period, which had a major impact on the result.
Speaking to the Herald, group chief executive Nick Grayston said the group had spent more than an additional $15m in the period to manage Covid-19 risks facing both its customers and workforce.
"We made a number of choices that I don't regret at all even though they cost us," he said.
The group had to change staff shift patterns and timings to manage the risk of transmission among its workforce at its South Auckland distribution centre which came at a financial impact, employ additional staff to ensure it was complying with customer store number limits and QR code scanning mandates at the entrance of its stores, and had to purchase thousands of rapid antigen tests, which had totalled an additional $15m in costs in the period.
The Warehouse Group chief executive Nick Grayston. Photo / File
International shipping charges had also taken a much bigger chunk out of costs in the six months. Before Covid the group would spend between $700-$800 per shipping container of goods, this had now increased to between $5000 and $7000, Grayston said.
"Overall in summary, [there have been] massive challenges. We're very happy the transformation is still on track and while we had a good bounce-back in the second quarter, it still left us short of the big bounceback like last year."
Grayston seemed pleased with the result considering the market conditions but was cautious and unable to give any forecasts or comment on current trading conditions.
He could not say whether this result marked the start of a downward trend in financials given the grim outlook on headwinds ahead.
"We're not out of the woods yet," he warned of the Omicron outbreak.
"In the short term we see continued challenges from Omicron. Whilst we think Auckland is past its peak ... Omicron is not finished for New Zealand yet. We see it starting to affect other parts, especially the South Island.
The group anticipated that consumers' disposable income would become smaller too as fuel prices and other costs were driven higher in line with inflation.
"There are some very real signs that the customer is under a lot of stress."
Despite rising inflation and costs of doing business, Grayston said the group had been absorbing costs as much as it could and was conscious of what products and goods it increased prices on. It has committed to not increasing prices of essential items such as children's clothes, key groceries, work clothes, heaters and bedding.
"There are some areas where we've chosen to take reduced margins because we want to make sure that our customers get that value."
At the peak of Omicron in Auckland, the group lost about 5 per cent of its team - the equivalent of 500 staff, isolating at one time. The number is about half of that currently.
Grayston said the company's decision to move to an agile operating model 18 months ago was "the best decision I have ever made" and was the reason why the business had been able to continue to make progress on its digital transformation programme despite facing significant disruption from Covid-19.
A number of its multi-year internal systems projects, including its warehouse management system, will be completed this year.
The Warehouse Group shares were up 6.42 per cent to $3.15 at midday yesterday following the earnings announcement.
