Warehouse profit slides in tough retail environment

Photo / Michael Bradley

Warehouse Group, New Zealand's biggest listed retailer, reported an 8.9 per cent drop in first-half profit as the tough retail environment squeezed margins at its Red Sheds.

The Auckland-based company's net profit was $52.3 million, or 16.8 cents per share, in the 26 weeks ended January 30, from $57.5 million, or 18.5 cents, a year earlier.

The retailer was forced to cut its operating margin 0.4 percentage points to 9.2 per cent at its Red Sheds, which reported a 5.9 per cent decline in operating profit.

Read the company's financial results presentation here.

Adjusted profit, which strips out one-off items, was $52.9 million, in line with broker Forsyth Barr's expectations. The retailer flagged full-year profit of between $76 million and $80 million, up from $60.5 million last year.

The results reflect "increased discounting and price deflation across the market," chief executive Ian Morrice said in a statement.

"While gross margins have been maintained, lower sales overall have translated into lower earnings for the half year."

Morrice will end his seven-year tenure with the company in November, having pulled the retailer our of its failed Australian and grocery expansions.

Mark Powell, the head of the chain's stationery stores, has been named as his replacement.

The directors announced a dividend of 15.5 cents a share, or 92 per cent of net profit.

The stock fell 0.3 per cent to $3.38 in trading yesterday, and have dropped 3.1 per cent this year.

The retailer's stationery stores lifted sales 2 per cent to $98.1 million, while operating profit climbed 22 per cent to $3.7 million.

Chairman Keith Smith said the result was satisfactory given the tough trading environment.

Retailers have had to offer deep discounts over the past 12 months as households eschew new spending in favour of repaying debt.

Government data released yesterday showed customers are still reluctant to spend, core retailing on electronic cards soft last month.

The company said last month's 6.3 magnitude earthquake in Christchurch, which has killed at least 166 people and wrecked as much as $15 billion worth of damage, won't have a material impact.