Warehouse Group interim chief executive John Journee said that while the group’s sales trend has continued to show a better trajectory in January and February, gross margins remain constrained across all three brands.
“We’re encouraged by the positive customer response when we get our product and pricing right, and this will underpin our performance recovery as we deliver these improvements at scale,” Journee said.
“Whilst we are likely near the bottom of the discretionary retail spending cycle in New Zealand, this level of financial performance is unacceptable.”
He said the business remained focused on “prudent fiscal management”, but continued to refer to uncertainty around the group’s second-half performance.
“At this stage, management’s best estimate of H2 FY25 ebit is that it will be broadly in line with the H2 FY24 ebit loss of circa $14m.”
The company is expecting the economy’s recovery to improve consumer sentiment and encourage families to start spending again.
Analysts react
Forsyth Barr analyst Paul Koraua said the result reflected the tough competition The Warehouse faced over the last few months.
“From a revenue perspective, it was actually a little bit better than me and the rest of the market had been anticipating. Basically, all the feedback we’ve been getting from retailers is that they’ve had to take the hit on margins,” Koraua said.
He thinks that cost-cutting will be crucial for The Warehouse moving forward, and will be looking out for any savings in their first-half result.
“A good result in New Zealand at the moment is if you can keep your sales flat. If you’re The Warehouse and you’re looking at making $4m this year, if you lose a little bit of sales at the top line, you’re staring down the barrel of making a loss and potentially getting yourself in more trouble.”
Devon Funds Management head of retail Greg Smith said The Warehouse was experiencing the same pains as other retailers, particularly regarding margin pressure.
“It’s a bit like the slogan, literally everyone is getting a bargain and, then some. A lot of companies that are domestically focused are finding things pretty tough, given where the economy is at, a lot of promotional activity is being required,” Smith said.
He believes The Warehouse may have more pressure on it to perform than other retailers, particularly considering it “is trying to drive a turnaround in the midst of one of the worst recessions we’ve had in decades”.
“What the announcement today possibly tells us is that they talked about the economy being at the cyclical bottom, but maybe as far as The Warehouse goes, things haven’t reached rock bottom.”
Both Koraua and Smith were certain of one thing, an announcement on the future chief executive would be critical for shareholders' confidence.
“It’s crucial, you’ve got to be careful about making sure that they’ve got the right strategy in place and that they put the right person in place,” Koraua said.
“This is a business that does $3b in revenue and you know is looking at making $4-$6m of ebit this year, so they’ll be making a loss of some $3b. This business should be making more money.
“I challenge a lot of people to find another business in the world that would have similar metrics.”
The Warehouse will release its first half results on March 21.
Tom Raynel is a multimedia business journalist for the Herald, covering small business and retail.
