Warehouse Group prospects downgraded

Forsyth Barr acted swiftly yesterday in downgrading The Warehouse Group's prospects for the current financial year after the unexpected profit downgrade announced earlier.

Forsyth Barr broker Andrew Rooney still remained hopeful the promised dividend of 19 cents per share (cps) would be maintained.

''The company kept to this in 2014, despite an elevated dividend payout ratio, following an earnings deterioration. We expect a similar reluctance to cut the 19 cps dividend in 2015 - despite a further elevated payout ratio.''

Earnings guidance from The Warehouse indicated sales over the key Christmas trading period did not meet expectations. Guidance for the first-half profit, to be announced in early March, was likely to be down about 20% on last year.

The Red Sheds remained the main contributor to the group profit and was one of the key drivers of the profit warning, Mr Rooney said.

The Christmas trading period was not helped by the late start to summer weather in New Zealand.

Graphs supplied by Forsyth Barr showed 2014 November and December temperatures across the country were colder than in 2013, particularly in Auckland during November.

Maximum daily temperatures averaged 18.7degC in November across New Zealand, compared with 20.5degC in November 2013. In contrast, temperatures averaged 21degC in December versus 21.5degC in 2013.

''Unfavourable weather can typically be viewed as a one-off event. However, Red Sheds has been a driver of recent downgrades, creating questions around its core business which has yet to deliver adequate returns following the significant store reinvestment programme.''

The Warehouse needed Red Sheds sales to return to growth in order to leverage its higher fixed cost base - higher depreciation following store refits and the im-pact of paying staff a living wage, he said.

Regarding Noel Leeming, the group reported first-half sales were tracking below last year.

Sales figures indicated Christmas trading was weaker than expected and lower than the previous year. Divisional earnings would also be negatively affected by one-off rebranding costs, Mr Rooney said.

Forsyth Barr had downgraded its 2015 earnings forecast for The Warehouse Group to reflect the trading update and the expectations of low earnings in the second half.

Add a Comment