The boss of The Warehouse has issued a strong warning about the economy after the company posted a 61 per cent fall in half-year profit.
“Peak misery is still to come,” chief executive Nick Grayston said when asked about the cost-of-living pressure on consumer spending.
The retailer this morning cited high inflation and continuing cost of living pressures as the main contributors to its big fall in profit in the six months to January 29.
Net profit for the six months ended January 29 fell to $17.4 million compared with $44.4m in the same six months a year earlier.
The shares tumbled as much as 13 per cent at one stage and recently traded down 10 per cent at $2.16.
The company is taking “decisive” action to improve its financial performance, including previously announced restructuring that is likely to result in up to 340 job cuts.
On an investor call, Grayston explained the profit slump was also due to increased expenses coming from a move to cloud-based software systems and increased staff costs.
The company has seen increased capital expenditure over the last couple of years and expects levels to slow by the full-year 2024.
Overall sales were up 4.8 per cent on last year at $1.8 billion while earnings before interest and tax (ebit) for the six-month period were $45.5m, down 42.3 per cent.
The board cancelled the first-half dividend.
“It’s hard to predict how minimum wage hikes will impact the economy,” he said.
Grayston told the Herald the company plans to cut up to 340 positions in total.
“It’s something we never like to do,” he said.
Redundancies for the support staff in Tāmaki Makaurau are expected to reduce company costs by up to $35m.
Grayston said minimum wage hikes have cost the company an extra $900,000 in the last six months, expected to add up to $2.7m by the full year.
The CEO was featured in the recent Herald executive pay survey as the sixth highest paid, receiving $3.57m last year.
He said the company was still “in consultation” with staff and that numbers will “move around” before being finalised.
Grayston cited research showing 52 per cent of Kiwis were living paycheque to paycheque and said The Warehouse was focusing on providing value where it could soften the cost-of-living impact.
There has been “some encouragement” in spending as cyclone-affected areas have seen an uptick in benefits and Winz payments which have driven sales at the Warehouse, he said.
However, insurance payments have been slower getting off the ground, meaning spending to replace damaged household products has slowed.
“It’s hard to predict how much and when those will be,” he said.
While the group was endeavouring to keep prices down on key essentials, prices will go up for some of the Warehouse’s range.
“We will be dialling back in the second half which will be less margin-erosive,” Grayston told investors.
“We don’t want to replicate supermarkets but provide value for key essentials, not to have a bonfire of inventory,” Grayston told investors this morning.
“We’ve taken out costs so we can afford to keep prices low and stop the spiral [of high prices]”, he said.
The retailer’s grocery category sales jumped 34 per cent on the prior period, with pantry and chilled products making up 20 per cent of The Warehouse customer shopping baskets in terms of units. This is up from 10 per cent two years ago.
As a big-box store the Warehouse “is at the forefront of rising discretionary spending”, and the board expects the impact to hit the retailer hard as fixed mortgage rates roll off this year.
Consequently, Grayston said the team are pausing new initiatives for their brands, like a proposed digital wallet and a phone app that will pull together all the group’s brands.
He said the delay will “take losses down significantly”.
A drop in Noel Leeming sales was attributed to slowed demand as Kiwis head back to work and school after the pandemic.
Grayston said the group is now competing with other discretionary spending streams like tourism and entertainment.
Referring to the economic outlook, he said: “Peak misery is still to come.”
“We’re battening down the hatches to make sure we’re running as efficiently as we can,” he added.
The company’s overall outlook for the next six months remained “challenging” as customers face cost-of-living pressures and the “economic outlook remains unpredictable”.
Chair Joan Withers said that The Warehouse’s board had made the “very difficult” decision not to pay an interim dividend. “It’s not a decision that we made lightly,” she said.
Grayston said he expected conditions to remain challenging given the increasing cost-of-living pressures and rising interest rates which were impacting customer spend, and general costs of doing business, including wage increases.
“While the macroeconomic outlook remains unpredictable, we are taking action to ensure the ongoing improvement in operational performance.
“We are committed to our strategy to create a future-fit retailer to deliver great value for our customers, as well as completing existing major programmes of work to deliver operational efficiencies,” he added.