Warehouse Group posts profit drop
This comes as it transitions its iconic red shed discount stores to an ‘everyday low prices’ model and integrates its businesses.
Adjusted profit fell 16 per cent to $37.7 million in the six months ended January 28, which was ahead of the company’s forecast range of $32m to $35m.
The second-half performance was likely to be similar to the year-earlier, producing full-year adjusted earnings of $50m to $53m, a decline of about 25 per cent from the year earlie.
Its shares lifted 0.5 per cent to $2.03 in early trading, having lost a fifth of their value over the past year.
Warehouse is 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.
Chair Joan Withers explained that the Group’s primary focus in the first half had been to relentlessly trade the peak retail season, while also focusing on its ambitious transformation agenda.
“A key pillar of our strategy is to fix our retail fundamentals, which means driving major changes in the way we operate the business, and how we delight our customers.”
“With a strong team now in place, and support from external experts, we are confident that we can successfully execute our next major change agenda in 2018 to drive improved performance” Withers said.
The transition is weighing on margins in the business, as sales revenue falls in line with a drop in the average selling price and costs increased due to increased logistics costs for higher unit volumes and employee costs.
It’s also making changes to integrate the operations of red sheds with its stationery unit, its sports goods business Torpedo7 and appliance retailer Noel Leeming, which was the only unit to grow earnings in the half.
“The business is executing on its change agenda and the board is encouraged by the first-half results, with the decline in financial performance from these changes to date being less severe than we have seen in other retailers who have shifted to an EDLP strategy,” the company said.
The red sheds business posted an 18 per cent drop in operating profit in the first half to $49m, as sales fell 3.6 per cent to $940.1m.
The company’s Noel Leeming appliance retail business, its second-largest unit, boosted operating profit 66 per cent to $15.3m, as sales rose 7.5 per cent to $453.9m.
Meanwhile, the company stationery stores posted a 43 per cent drop in operating profit to $3.7m as sales fell 7.1 per cent to $129m.
Its Torpedo7 unit posted a 68 per cent drop in operating profit to $800,000 even as sales increased 2.5 per cent to $88.6m.