Warehouse Group expects big profit drop
In a trading update, the retail giant said same store sales were down (2.8 per cent) over the critical Christmas period compared to the Q1 rate of (4.0 per cent). Year-on-Year unit sales showed an increase of 5.1 per cent with transactions rising 2.9 per cent in conjunction with strong sell-through of seasonal lines.
“As expected the move from hi-lo to every day low price (EDLP) in the Warehouse ‘Red Sheds’ coupled with a one-time reduction in ranges and consequent clearance activity has resulted in a reduced average selling price, however margin rates on current products have generally improved, and customers’ reaction to the pricing changes and product improvements have been very positive,” the company said.
Meanwhile the Warehouse Stationery ‘Blue Sheds’ division is preparing for its peak Back to School trading season, however the retailer expects sales to be down approximately 6.5 per cent at the first half (H1) based on softer performance of communications and technology segments and the one-off impact of the integration of the Blue Sheds’ business onto core Red Sheds operating systems at the start of the financial year.
“While we are all keen to start delivering the benefits of our transformation, we have a long way to go, but these are encouraging signs,” said Nick Grayston, Warehouse Group CEO.
“H1 trading to date has confirmed for us that our customers like and have responded well to our pricing and product changes. We continue to invest in technology and build out the team to execute the next steps in our change programs.”
The result included “a significant accrual for a redesigned incentive programme, intended to reward better than expected financial performance along with reinforcing specific behaviours necessary to execute the transformation”.
Excluding the accrual, Grayston said the performance would be similar to the prior year when first-half adjusted earnings fell 13 per cent to $39.7m, falling within the guidance range of between $38.5m and $41m.
Many of the operational impacts on profit performance are transitional in nature and not expected to recur, according to the retailer.
“The Warehouse Group is in the process of a fundamental transformation to improve performance and profitability, which is our key focus for 2018,” said Joan Withers, chair of the board of directors.