KEY POINTS:
Expectations are muted for The Warehouse Group's results announcement on Friday as difficult trading conditions and the prospect of a takeover loom over the retailer.
Analysts are picking a lacklustre first half profit little changed from a year ago, in line with the company's own assessment based on
flat sales during the run-up to the key Christmas period.
Deutsche Bank analyst Kristan Walker said he was not "expecting the world".
"Obviously November-December was pretty weak - certainly the patchy demand is continuing to weigh on the company's earnings."
The retailer's guidance is for net profit after tax for the six months ending January 27 to be similar to the $60.1 million achieved in the corresponding period last year. This includes the release of warranty provisions of up to $5 million associated with the sale of The Warehouse Australia in 2005, which lapsed during the period.
The outlook was also cautious, with the company expecting retail spending to be unpredictable for some time. Walker said the move into grocery retailing has cut expectations.
"I think certainly The Warehouse Extra format has been a bit of a disaster in terms of it not really being a financially viable operation.
"And probably one could criticise the current management team for being just a little bit haphazard with trial-and-error - giving something a go, then something else a go, but not really being committed to any one kind of strategy."
But apart from that, Walker said the rebranding has gone well, and chief executive Ian Morrice and his team have been doing a good job.
"Obviously they haven't had the best retail conditions to contend with over the last few years, but they've made the best of a difficult situation.
"And I'd expect a bit of difficulty when people are not absolutely certain of their future."
The focus was on the prospect of a possible takeover, he said.
Forsyth Barr analyst Guy Hallwright said taking into account the warranty provisions, the results would be down on last year.
"They've been saying for a while that retail conditions have been up and down from month to month, and a number of other retailers have been saying the same sort of thing. They've apparently done quite well in apparel-clothing. That's quite a high margin business but it sounds as though they've been knocked around a bit in consumer electronics, so overall I suspect the margin will actually be down on last year."
Hallwright said the Warehouse Extra format had not been successful.
"Disaster's probably too strong a word but what they're trying to do at the moment I think is doomed to fail. I don't really think you can come in and take on the supermarkets with a 'me too' policy, and just say we'll work on broadly the same prices as the other supermarkets."
He said a discount policy on the grocery business was needed if the Extra format was being used to encourage people into the stores.
"They haven't as yet really done that. The policy could evolve - obviously you refine a concept like that until you find you've got it right. I don't think they've got it right yet."
RED SHED TAKEOVER STILL LOOMING
The possibility of a takeover still looms over the Red Sheds.
The Court of Appeal will hear over three days, beginning April 29, the Commerce Commission's appeal of the High Court judgment clearing Woolworths and Foodstuffs to acquire up to 100 per cent of The Warehouse Group.
The High Court in November had overturned the commission's June ruling that a takeover would harm competition - given The Warehouse's grocery strategy via The Warehouse Extra format - and strengthen the supermarket duopoly.
Until then, the whole affair is in a holding pattern.
Shares had spiked late last month on market speculation that the rival suitors, who each hold 10 per cent of the retailer, would make pre-emptive strikes on the stock upon the lapsing of the High Court moratorium preventing either party buying additional stakes in the company before February 29.
But that prospect was dispelled after the two sides - jittery that any pre-emptive bid could extend the nearly 18-month legal rows that have surrounded the sale process - agreed that they would not go ahead with any advance takeover.
By both sides' own volition, clearance to buy shares will now be suspended until May 1 - the last day set down for the Commerce Commission appeal.
