Warehouse shares fall after CEO's departure

Shares in retail discount chain the Warehouse dropped five cents today in immediate response to the shock announcement on Friday after the market closed that chief executive Greg Muir was quitting.

The shares fell one cent to $4.29 in their first trade since Friday and then dropped to $4.25. The stock has fallen 43 per cent from $7.40 since mid-January.

Mr Muir, who said he was resigning because of unspecified philosophical differences, will be temporarily replaced by company founder Stephen Tindall, from whom Mr Muir took over three years ago.

The split is not considered acrimonious as Mr Muir will stay on until at least July 31.

The market is reasonably comfortable that Mr Tindall will be a safe pair of hands but not entirely convinced.

"Stephen Tindall has been out of the game in a day-to-day sense for three years now, so the market might have a little bit of doubt if he can turn this thing around," one analyst said.

Forsyth Barr head of retail Shane Edmond said the explanation on Friday for Mr Muir's departure was relatively brief and, "as always the market will make up what they don't know. It's unfortunate, because there is definitely not enough information ... the speculation is probably not very helpful on the back of their announcement unless you do know some background."

Mr Muir denied the split had anything to do with the company's problems in Australia but many in the market are assuming it does because the board and Mr Muir will not specify where the problems were.

Another analyst said Mr Tindall was highly regarded by the market and had a "tried and true" Warehouse formula.

The suddenness of Mr Muir's resignation meant someone with credibility and company experience was needed, he said, adding that Mr Tindall was the obvious person.

However, Mr Muir's departure had confirmed the market's worst fears: that the issues behind the company's failure to meet targets in Australia were now "glaringly worse" than previously thought, the analyst said.

Operating earnings in Australia fell 35.3 per cent to $5.1 million, The Warehouse said in its half-year result in January. Operating margins fell from 3.1 per cent to 1.8 per cent. The latest third quarter figures showed sales in Australia rose 10.3 per cent compared with the same period last year, while same-store sales fell 4.2 per cent.

When the sales figures were issued last month, Mr Muir said the Australian business was experiencing weaker sales growth and lower margins than previously forecast. There was both intense competition and softer trading conditions in some segments.

But other reasons may be behind the differences. Stephen Cummings, professor of strategic management at Victoria University, last month argued that The Warehouse has reached near saturation of the New Zealand market.

He believes that The Warehouse has to look at product, geographic or brand diversification, or perhaps all three.

"When you reach that point, then you may have trouble growing unless you start to diversify. Where is the growth going to come from once every reasonable sized town has a Warehouse?"

- NZPA