Warehouse profit almost 25% down

Shares in the country's largest listed retailer, The Warehouse, today fell 7 cents to $5.10, despite the company hiking its dividend on the announcement of its annual result.

The result was at the lower end of expectations with a 25 per cent fall in annual profit on losses from quitting its Australian business, but the company also reported improved sales.

The Warehouse today posted a 24.8 per cent lower annual net profit of $29.3 million for the year to July 31, but hiked the dividend by 1.5c to 5.5c per share.

The group's sales slipped 14.3 per cent to $1.91 billion (from $2.22b the previous year) and operating profit before tax was down 28.2 per cent to $55.7m ($77.6m).

The discount retailer has been trying to increase margins and improve its brand, cutting inventory levels and turning away from short-term discounting.

The Warehouse also sold its disappointing Australian operation last year, notching up $88m in pre-tax losses.

The company said it was facing challenging conditions ahead because of such things as higher interest rates and petrol prices cutting disposable incomes.

"It seems a little bit below consensus," said ASB Securities broker Stephen Wright.

"It's a little bit disappointing in view of the share price run up, although that may have been for other reasons."

He said there was a lot of anecdotal evidence to suggest the retail environment was difficult at present.

The retailer's net profit after tax (NPAT) excluding the disposal of The Warehouse Australia was $96.9m in the latest 12 months. It reported improved sales, operating profit and NPAT from continuing operations.

Sales from continuing operations were up 2.2 per cent to $1.72b and earnings before interest, tax, depreciation and amortisation were up 5.8 per cent to $183.5m. Second half operating profit from continuing operations was up 12.3 per cent to $57.3m.

The Warehouse New Zealand achieved improvements in sales and margins, the company said.

The first Warehouse Extra format opened at Auckland's Sylvia Park store in June 2006 and was performing to expectations.

Three replacement stores in Palmerston North, Lower Hutt and Sylvia Park opened during the year while two stores (Napier and Pakuranga) were extended.

Store retail space grew 4.2 per cent to 459,594 square metres across 85 stores.

The Warehouse New Zealand said it continued to make "significant progress in refreshing its offer from source of supply to shelf".

It had introduced new apparel and housewares brands and established "credible full grocery offer", as demonstrated by Sylvia Park.

Warehouse Stationery sales were up 6.4 per cent to $211.7m ($199m), with same stores sales up 4.4 per cent and operating profit up 142.3 per cent to $9.3m ($3.9m).

The group made more money from financial services -- $4.2m ($3.9m) -- but lower gains from property sales -- $1.6m ($3.3m) -- during the year.

The Warehouse Australia recorded sales of $162.4m in the four months before its divestment, compared with $518.6m the previous year.

In its outlook for this year, the company said trading conditions remained challenging.

Consumer demand was weakening, reflecting the impact of petrol price increases, a reduction in house equity withdrawal, higher mortgage rates and a softening housing market.

"Expect real sales growth in the New Zealand retail sector over the next 12 months to be flat," the company said.

Its goal for this financial year was "delivering sales and earnings growth ahead of the market".

- NZPA