KEY POINTS:
The Warehouse Group is reviewing expansion plans in a "challenging" retail market as supermarket giants Woolworths and Foodstuffs circle for a takeover.
Warehouse chief executive Ian Morrice yesterday delivered a $61 million profit for the half-year to January 28. The result largely met analysts' expectations as the company had downgraded its forecast in January.
The Red Sheds survived difficult Christmas trading, with clothing and outdoor furniture sales down because of poor weather, Morrice said.
But he revealed that he was rethinking refurbishment plans for some stores and had delayed the start date for a third Extra grocery store, albeit by just a few months.
Morrice also reduced the outlook on capital expenditure for the rest of the financial year from $90.8 million to between $65 million and $70 million.
He is reviewing the number of stores due for big refurbishments or the lower-cost style makeovers, which focus on signs and layout.
Woolworths and Foodstuffs, which have a supermarket duopoly, are awaiting Commerce Commission clearance for a potential takeover of The Warehouse.
Morrice yesterday dismissed a suggestion that the high-profile play for the ownership of the Red Sheds and Warehouse Stationery stores might weigh on expansion plans.
"That is none of our [management's] concern," he said. The strategy was clear-cut and the company was carrying on with the plans it had already outlined.
That view was backed by analysts, who said the scale of the capital expenditure reductions was relatively insignificant as the company was likely to be sold for more than $2 billion.
Retail analyst Guy Hallwright of stockbrokers Forsyth Barr said the review of refurbishment options suggested the company was shifting focus.
"Things are being pushed out - not so much with the building of the big Extra supermarkets - but the transformation of other stores. They appear to be going for the cheaper option. It may be that the returns that they have been getting from the refurbishment are not so great."
Asked how much sales had improved after the recent full refurbishment of the Nelson store, Morrice was ambivalent, saying only: "We can do better."
He said the decision to reduce capital expenditure was partly due to the decision not to buy land.
The company had changed timing to introduce new products and that had removed the need for some of the planned capital expenditure.
The plans to develop a third "Warehouse Extra" grocery store had been moved from Tauranga to Te Rapa, Hamilton, and from the second half of this year into the first half of the next financial year.
Macquarie Equities Retail analyst Warren Doak said that the approach made sense and that Morrice was dealing with a company that was operating in several retail categories.
The Warehouse was not landbanking for expansion as it had done.
"Their store rollouts in future are going to be in the major metropolitan markets and in the next six to nine months they do not need to procure land."
Morrice said the company faced a challenging outlook. He said the official cash rate rise would bring a fall in disposable incomes and an increasing number of retailers would be chasing consumers who were not going to be spending any more.
He said that the result, which included a 2 per cent rise in total group sales to $951.7 million, was encouraging. Same-store growth for the period was just 0.9 per cent, but there were already signs of improvement in the second half.
In February same-store sales were up by 6.6 per cent.
Trading conditions since January had been firm and directors were comfortable with the market consensus forecast for a full-year profit of around $96 million.
The interim dividend was set at 12c, compared with just 1.5c from last year.
The Warehouse share price closed yesterday at $6.88 up 12c.
