Path back to profit 'marketing 101'

The Warehouse appears to be going back to basics after delivering a disappointing full-year result where after-tax profit was down almost 9% to $76 million, at the bottom end of earlier guidance and well below analysts' expectations.

Overall revenue for the year to July was down 0.3% to $1.66 billion, earnings before interest and tax were 5.7% to $119.3 million and after-tax profit, after one-off unusual items, was $76 million, down 8.6% compared with $83.4 million the year before.

The Warehouse's 22c per share dividend was 8.9% down and after the announcement its share price was down 2.3% at $3.37.

Craigs Investment partners broker Peter McIntyre said the result reflected The Warehouse as a mature business no longer in growth mode, which meant investors should be looking to dividend payments.

"It is not an inspiring result. While the Blue Sheds' [Warehouse Stationery] revenue is well below Red Sheds', it was the closest thing to being a highlight," Mr McIntyre said.

He said the Red Sheds' operating profit "declined strongly", down 12.3% to $98.8 million, while the Blue Sheds' partially offset that decline by delivering "another strong performance", being up 26% to $10.1 million.

Forsyth Barr broker Suzanne Kinnaird said the late and relatively warm winter would have hurt sales of seasonal lines.

She was disappointed with the result on several fronts, with the second-half Red Sheds result worse than expected, sales $2 million below forecast, earnings before interest and tax $7 million below forecast and margins during the half falling to 3.8%.

She said new chairman Graham Evans and chief executive Mark Powell were committed to turning The Warehouse around.

They yesterday revealed a major new three to five-year strategy to reinvigorate the Red Sheds and will spend about $300 million on refurbishments and new Red Sheds stores over the next five years.

Staffing has already been increased by 300.

However, Ms Kinnaird said given "past disappointments", and the fact the reinvigoration process would take years, she suspected investors would be sceptical until "hard evidence" of success began to emerge.

The Warehouse, which usually released financial guidance after the crucial Christmas trading period, yesterday said it expected adjusted after-tax profit for full-year 2012 to be "in the order of" $70 million, and reported after-tax profit around $80 million.

Mr McIntyre said yesterday's result reflected the effect and competitiveness of online retailing now "hitting hard on all retailers", a slow economic environment with wage earners not gaining salary increases and declining house prices eroding perceived wealth.

The Warehouse "strategy framework" released yesterday included "clear brand positioning and approach to product, price and promotion" and also "rejuvenation" of stores and store experiences.

"Their focus on basics, with 'product, price, promotion and placement' is really going back to marketing 101," Mr McIntyre said.

"The [three-year] strategy focuses on improved retail execution and significant capital reinvestment in the store footprint," he said.

Mr McIntyre noted supermarket giants Foodstuffs and Progressive Enterprises both still held 10% shareholdings each, effectively blocking stakes to any attempted 100% takeover.

"Key" to those companies retaining the stake, and future opportunities for them, lay in the large number of "perfect sites" of the Warehouse spread throughout the country, Mr McIntyre said.

- simon.hartley@odt.co.nz