The Warehouse has a lot riding on its half-year financial result out this Friday. Photo / Alex Cairns
The Warehouse has a lot riding on its half-year financial result out this Friday. Photo / Alex Cairns
Analysts are predicting another tough year for The Warehouse Group and are warning dividends are likely to be off the table for this financial year.
The Warehouse is due to report its six months to January 26 financials on Friday but has already pre-warned the market thatits group sales will be down by 1.6% compared to the first half of 2024 to $1.607 billion.
The group has also said it expects earnings before interest and tax (ebit) for the half to be in the range of $18 million-$20m compared to $62.8m reported the year earlier.
Forsyth Barr analysts Paul Koraua and Rohan Koreman-Smit said The Warehouse’s first-half trading update highlighted a more challenging January quarter than they had feared.
“While sales held up better than anticipated, gross margins came under pressure due to heightened promotional activity,” Koraua and Koreman-Smit said.
“Our revised forecasts are marginally below the lower end of FY25 guidance.”
“[The Warehouse] expects the economy to recover towards the end of 2025, but we think the risk remains to the downside ...”
The analysts said this was because the second half of The Warehouse’s financial year was a seasonally weaker sales period, promotional activity was likely to remain elevated, and The Warehouse had a high fixed-cost base and significant operating leverage.
Craigs Investment Partners analyst Kieran Carling said The Warehouse’s trading update highlighted the ongoing pressure facing consumers, alongside the deep and prolonged discounting across a highly competitive sector.
“[The Warehouse] has contended with a number of operational challenges in recent years ...”
That included incurring significant losses from non-core divisions, pursuing sales from margin erosive channels, and investing heavily in digital platforms that had not delivered returns, Carling said.
Carling said despite The Warehouse’s recent improvement in sales its margins remained under pressure and the company had yet to deliver any meaningful cost savings.
“Dividends are likely to remain suspended for the duration of FY25,” he warned.
Jarden analysts Nick Yeo and Guy Hooper said: “The Warehouse is our least preferred exposure in the New Zealand consumer sector, having a high degree of both operating and financial leverage, as well as facing high levels of competition.”
Yeo and Hooper said the business had the ability to unlock value through a number of self-help initiatives, including stabilisation of The Warehouse, improved product offerings, and a more efficient operating cost base.
“However, with a poor track record of execution, we wait for some evidence of execution before becoming more positive.”
The company’s share price has continued on a downward trend since 2022 when it was valued at $4 per share. It opened on Wednesday morning on 88c down more than 28% over the last year.
Three factors to improve
First Retail’s managing director Chris Wilkinson, said there were three factors The Warehouse needed to deliver on – direction, performance, and leadership.
“The Warehouse faces intense competition across its core Red Shed and Noel Leeming from Kmart and JB Hi-Fi, while other major competitors continue to further diversify and strengthen in the ranges these brands have once dominated,” Wilkinson said.
“Shareholders will want to understand that The Warehouse brands have a clear plan to decisively differentiate and find a competitive advantage in this increasingly crowded market.”
Wilkinson said shareholders will be looking at other retail companies, the likes of Kmart, Kathmandu and Briscoes, and questioning if The Warehouse can produce similar results.
Warehouse Group interim chief executive John Journee has been leading the company's strategic reset as the search for his replacement approaches one year. Photo / Supplied
Leadership questions
One area of particular importance will be the leader driving that change.
Since former chief executive Nick Grayston’s exit in May 2024, former independent director Journee has been steering the company’s strategic reset.
Journee has reintroduced individual brand leadership teams, and re-evaluated product ranges across the board.
Speaking at The Warehouse’s annual shareholder meeting in September last year, Journee said cultural nuances are important to people, and it’s something he understands will be crucial for his eventual replacement.
“New Zealand has unique aspects to it, it’s a relatively small economy. We have different desires and priorities, and we look outwards,” Journee said.
“I think people stop when a company, especially a company they regard as a Kiwi company, talks off tone. I think as a board we’re conscious that that’s important, and it’s strongly part of our brief.”
Wilkinson believed the business needs to have a clear plan for delivery and outcomes, and that starts from the top.
“Regaining the brand’s past challenger mindset and persona must be key to bringing The Warehouse, Warehouse Stationery and Noel Leeming back into the hearts and minds of New Zealand consumers.”
It’s rumoured the company finalised its candidate shortlist early this year, but it’s unclear as to whether any announcement will be made come the result.
Tom Raynel is a multimedia business journalist for the Herald, covering small business and retail.
