Warehouse profit falls on music, movie weakness

The Warehouse chief executive Ian Morrice. Photo / Natalie Slade

Warehouse Group, New Zealand's biggest listed retailer, posted a 2.3 per cent decline in full-year earnings, before one-time items, on weaker sales of compact disks and DVDs.

Earnings fell to $83.2 million, or 27 cents a share, in the 52 weeks ended Aug. 1, from $85.2 million, or 27.6 cents a year earlier, the Auckland-based company said in a statement. Net income dropped about 22 per cent to $60.2 million, reflecting a previously disclosed one-time charge for changes to tax rules for depreciation.

Adjusted earnings just missed the $84 million forecast in a Reuters survey and reflects a profit margin that shrank 90 basis points to 3.6 per cent in the latest year.

Still, the retailer raised its dividend payout ratio to 90 per cent of adjusted profit from 75 per cent and announced a special dividend of 5 cents "in a sign of the board's confidence in the company's ability to continue generating solid operating cash flows."

Warehouse is optimistic about the medium to longer-term prospects for the economy but is expecting trading conditions "to remain difficult for a period of time yet," chief executive Ian Morrice said. "We expect consumer spending to continue its gradual improvement over the next 12 months but will likely remain patchy."

The company declined to give guidance for 2011.

Total sales in the latest year fell 2.8 per cent to $1.67 million, reflecting a 3.6 per cent drop in revenue from its Red Shed department stores and a 3.4 per cent gain in sales at Warehouse Stationery.

Operating earnings soared 404 per cent at the stationery outlets to $8 million, softening the blow from a 6.3 per cent decline in Red Shed earnings to $112.7 million.

Morrice said trading at the Red Sheds reflected "a very difficult trading environment for retailers with recovery in overall consumption remaining subdued and patchy."

Helping to weaken sales was a $13 million decline in sales of music CDs and DVDs. That reflected a broader downturn in the sector, as consumers increasingly switch to online sales.

Net debt rose to $72.4 million from $47.2 million.

Shares of the Warehouse closed at a 4-month high of $3.69 yesterday and have fallen about 9 per cent this year, underperforming the NZX 50.

The company is rated 'hold' based on the consensus of nine recommendations compiled by Reuters.

The retailer will pay a final dividend of 8.5 cents and special dividend of 5 cents a share on November 17 with the entitlement date of Nov. 5.