Lower sales mean lower profit for The Warehouse

Gross margins were maintained but lower sales in the six months ended January 31 meant lower profits for The Warehouse Group.

Departing group chief executive Ian Morrice said the fall in sales was due to tightening of the CD and DVD market and price deflation due to better buying and a higher New Zealand dollar.

The company had to "move more boxes to make more sales" as the price of products fell.

Despite higher discounting, profit margins were in line with last year.

"It would be fair to say the business model requires sales. Sales and margins are the most important thing for the business," he said.

The company yesterday reported earnings before interest and tax of $80.9 million, down 5.2% on the previous corresponding period (pcp).

Revenue fell 1.2% in the period to $907.95 million and the profit after tax fell nearly 9% to $52.3 million. The interim dividend was held at 15.5 cents per share.

Mr Morrice said the group experienced transaction growth in the half-year and unit volumes rose.

"While we are disappointed at the sales drop - we had planned on sales growth and had indeed bought for sales growth - we are, nevertheless, still encouraged by a number of categories that continue to perform well," he said.

Sales of sporting goods rose 4.6%, home appliances rose 4%, housewares rose 2.5% and furniture rose 9%.

The company had to deal with the issue of a continuing decline in sales of CDs and DVDs but the decline needed to be viewed in the context of sales in other categories, he said.

A breakdown showed that Warehouse Stationery increased its operating profit by 21.7%, while other group operations reported a 20% fall in profit.

The company was expecting trading conditions to be challenging for the remainder of the year.