Warehouse tipped to stay on par

Bellwether retailer The Warehouse is expected to post flat full-year results tomorrow amid declining market share, discounting to shift stock, and scoured profit margins.

However, analysts have noted several positives during the year, with the 87-store group having addressed the level of inventories carried, reduced operating costs, and been pro-active in its management of profit margins.

Forsyth Barr broker Peter Young said while the New Zealand retail environment had improved from its lows of one to two years ago, growth remained low and monthly volatility high.

"The Warehouse continues to lose market share, but is proactively managing margins and reducing costs, and the improvement in [Warehouse] Stationery is gathering pace," Mr Young said.

Craigs Investment Partners broker Peter McIntyre said while The Warehouse group sales had been "flat-lining in difficult trading conditions", management had done well getting inventory levels down and other in-house costs under control.

"We still like The Warehouse, because its dividend yield is still there, and is sustainable, plus it has a widespread footprint [of 87 outlets]," Mr McIntyre said.

Forsyth Barr had predicted earnings before interest and tax at $124.4 million, which is at the lower end of expectations, and reported profit down 19.3%, from $76.8 million last year to $62 million; the latter including a $23 million deferred tax charge.

Craigs Investment Partners predicted earnings before interest and tax at $124.1 million, which is down on last year's $128 million, and adjusted net profit after tax up from $77 million last year to $84.7 million.

While there has been little action on a proposed takeover of The Warehouse by either Foodstuffs or Woolworths almost two years ago, Mr Young said a Woolworths or Foodstuffs takeover "remains possible but unlikely" in the short term. Mr McIntyre said provided both companies remained shareholders "it would be remiss to rule out" the possibility of takeover.

Mr McIntyre said The Warehouse had experienced a "slow, hard grind" to date and expected more of the same through 2011, but he expected a rise in sales from $1.7 billion to $1.78 billion in 2012.

Mr Young said the second-half trading period was usually a stronger profit half for the stationery division, with the back-to-school period boosting third-quarter sales, and he expected the second-half profit to be similar to the first.