Warehouse Group lifts third-quarter sales 2.6%

Warehouse Group's third-quarter sales advanced 2.6 per cent. Photo / File

Warehouse Group's third-quarter sales advanced 2.6 per cent as its Noel Leeming appliance and technology chain outperformed its other businesses.

Sales lifted to $701.2 million in the quarter ended April 29, from $683.5m a year earlier, the Auckland-based company said in a statement.

Warehouse said the sales were in-line with expectations and kept intact its forecast for full-year earnings of $50m-to-$53m, a decline of about 25 per cent from the year earlier.

Warehouse said the third quarter sales growth was "encouraging", following a 0.9 per cent drop in sales for the first half of its financial year.

The retailer is in transition, moving its red shed business, which accounts for the bulk of earnings, to an 'everyday low prices' model, cutting down on sales, marketing and stock clearance activity under the leadership of chief executive Nick Grayston, who took over from Mark Powell in December 2015.

The transition is weighing on margins, as average prices fall while volumes increase.

"The sales growth achieved in our third quarter shows a positive turnaround from the first half year, which was impacted by major changes to our pricing strategy and operations," Grayston said in a statement. "Noel Leeming has once again delivered a strong quarter of sales growth."

Sales at its 93 red shed 'Warehouse' stores slipped 0.9 per cent to $388.2m in the quarter, as the number of units sold lifted 7.5 per cent, resulting in an overall reduction in gross margins, the company said.

Apparel traded well with an increase in gross margins, and grocery sales also lifted while sales of DVDs, music and other items in the communications category declined, it said.

"Following the completion of the pricing strategy transition to EDLP, our focus has turned to price optimisation with a view to improving our margins going forward," Grayston said.

The company's 79 Noel Leeming stores increased sales 11 per cent to $212.2m and Grayston noted that performance was strong across most categories with key growth from communications, TV and audio.

Its Warehouse Stationery unit, known as 'blue sheds', posted a 1.4 per cent decline in sales to $71.1m, an improvement on the 7.9 per cent drop in sales for the first half of the year. It closed one store during the quarter, taking the total to 69.

Grayston said the improvement reflected steady 'back to school' trading and resolution of several system integration issues arising from the operational merger of its blue shed and red shed businesses. Communication category sales remained "challenging" in the quarter, he said.

Its sports goods business Torpedo7 lifted sales 6.1 per cent to $36.5m. The company noted its 11 physical stores continue to perform well with same-store sales growth of 21 per cent, with the cycle category a "key growth area".

The group's online sales in New Zealand lifted 6.6 per cent to $48.6m, with most brands showing growth. Its Noel Leeming unit increased online sales 16 per cent, while its 1-day daily deals business was flat. Online sales represented 6.9 per cent of group sales in the quarter compared to 6.6 per cent in the same quarter last year.

Warehouse said it had centralised its marketing functions and consolidated its agency relationships during the quarter and expects those changes to contribute to stronger online growth in the future.

Its shares were unchanged at $2.03 and have shed 4.3 per cent the past year.