The Warehouse posts higher sales for first half but coronavirus uncertainty looms

The Warehouse's online sales now make up 8 per cent of group sales. Photo / Hawke's Bay Today

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The Warehouse Group has reported a 20 per cent fall in first-half net profit to $28.7 million, dragged down by ongoing internal transformation costs.

Adjusted net profit for the 26 weeks to January 31 was $46.2m, up 16.7 per cent compared to the same period a year earlier.

The Auckland headquartered company which operates retail chains The Warehouse, Warehouse Stationery, Torpdeo7 and Noel Leeming, said sales revenue for the period increased 2.6 per cent to $1.68m and its online sales grew by 7 per cent, now accounting for a total of just under 8 per cent of all group sales.

Torpedo7 grew its sales by 9.4 per cent while Noel Leeming sales increased by 5.2 per cent. Sales at The Warehouse grew by 1 per cent while Warehouse Stationery sales grew by 0.8 per cent in the first six months of the year.

Warehouse Group chief executive Nick Grayston said the group remained in a strong financial position, with a net debt of $69m, and was pleased with the groups improved sales margins.

It will next month pay out a dividend of 10 cents per share for the first half of the year, compared to 9 cents paid out in the same period a year earlier.

The company has been undergoing a rapid transformation internally, including a shift to an every day low pricing model and initiatives to centralise its fulfilment operations and warehouse management system, which it says is expected to have ongoing benefits.

Grayston said the result was a "positive start to FY20 trading" but the Covid-19 outbreak had cast significant uncertainty for the second-half of the year.

"The uncertainty around the impact of the Covid-19 measures put in place by government creates significant uncertainty for the second half of the year," Grayston said in a statement announced to the NZX this morning.

The Warehouse experienced operational challenges over its centralised fulfilment operations and warehouse management system, but it expects these to be fixed by the end of the month, the company said in the announcement.

The timing of the Black Friday sales event compressed the peak Christmas trading period, paired with cooler weather over December and online fulfilment issues, for the retailer, which had resulted in lower sales growth.

The outlook for the rest of the year remained uncertain, the company said, however, it said it did not expect Covid-19 to have a material impact on its full-year earnings.

"We continue to see positive momentum in our sales and operating performance, however, this could change dramatically as a result of Covid-19 impacts," it said.

"The group continues to assess the impact of the Covid-19 pandemic on financial performance, including stock availability from impacts to our offshore supply chain, potential impacts to our employees and operations in New Zealand and in Asia, and our customers.

"At this point in time, our FY20 adjusted Net Profit After Tax is expected to be in the range of $75m-$77m, subject to no material changes in trading conditions. We are heavily caveating this expectation given the potential effect on the economy and our business of necessary measures the Government may implement to control and mitigate the spread of Covid-19."