The Warehouse Group just sold Torpedo7 for $1 after buying it for $55.2 million. While Kathmandu’s sales are struggling. Where to now for woeful retailers?
Video / NZ Herald
Retail stocks The Warehouse Group and KMD Brands, owner of Kathmandu and Rip Curl, hit historic lows this week. Analysts say poor decisions amid a slowdown in spending and fierce competition are to blame.
The Warehouse Group will need to do much more than sell off outdoor gear brand Torpedo7to pump life back into its struggling share price, which is down 51 per cent in the past year.
“They really need to develop a strategy and understand what their brand proposition is relative to some of these competitors like Kmart,” Craigs Investment Partners analyst Kieran Carling told Markets with Madison.
Overall, The Warehouse Group sunk $83 million into Torpedo7, Carling said - including the $55.2m it spent buying what was largely a bike shop in 2014.
It just sold it for $1 to Tahua Partners, the owner of Starbucks, Burger King and Number One Shoes.
Selling it eliminated a liability, Carling said, and it only made up 4.8 per cent of the group’s total sales.
Analyst Kieran Carling said some decisions made by The Warehouse Group's management, including chief executive Nick Grayston (pictured above), were "concerning". Photo / Jason Oxenham
The Warehouse Group chief executive Nick Grayston said with the announcement on Thursday that the sale allowed the company to focus on its core and improve its financial performance.
“The sale of Torpedo7 is one of the steps we’re taking as part of our strategic reprioritisation to narrow and simplify our focus on improving our performance and delivering better value to shareholders and customers.”
It leaves the retailer with The Warehouse, Warehouse Stationery, Noel Leeming and online membership store TheMarket.
And a market capitalisation of $480m - its lowest level in 24 years.
The Warehouse, where everyone gets a bargain... including Tahua Partners, which just bought Torpedo7 for $1.
Carling suggested the stock could still be overvalued and therefore have a way to fall, with its price-to-forward earnings ratio sitting around 12 times, compared to its pre-pandemic average price of around 10.8 times earnings.
“It does feel like we’re approaching the bottom [of its share price], but never say never.”
Carling said some of the decisions the company’s management had made in recent years were “concerning”, but wouldn’t go as far to say if leaders should roll.
“What I would say is, at times like this, particularly when the whole retail sector is under pressure, it does force you as a management team to pull levers that you wouldn’t otherwise need to pull.
“The reality is the Warehouse has a significant store base in New Zealand, they have a well-known brand and they have some very strong underlying businesses.”
He added the company would be better off avoiding offering groceries at its red sheds because it was low-margin business.
“That, historically, has been a tough space to compete in.”
The Warehouse was not the only retailer getting reamed.
Kathmandu and Rip Curl owner KMD Brands was also down 51 per cent in the past year, to an all-time low of 55 cents of this week.
KMD Brands was having a hard time too. The owner of Kathmandu and Rip Curl hit a historic low on the New Zealand Stock Exchange this week. Photo / Chris Gorman
On Tuesday, it revealed a 14.5 per cent slump in sales for the past six months.
Carling said that impact was a case of competition, namely MacPac taking market share from Kathmandu.
Costco and Kmart were taking customers from all retailers, he said, especially in an economic environment where price mattered.
“Part of the reason that consumers are pulling back in their spending is due to higher interest rates.
“I think over the next six months or so, conditions are going to remain pretty challenging.”
A better picture for retail could form if the Reserve Bank of New Zealand cuts interest rates this year, or house prices increase slightly, Carling said.
“That should give consumers a little bit more confidence to get out there and spend.”
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Disclaimer: The information provided in this programme is of a general nature and is not intended to be personalised financial advice. We encourage you to seek appropriate advice from a qualified professional to suit your individual circumstances.
Madison Reidy is the host of the NZ Herald’s investment show Markets with Madison. She joined the Herald in 2022 after working in investment, and has covered business and economics for television and radio broadcasters.
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