Warehouse lifts first half net profit 17 pct to $57.4m

Retailer The Warehouse Group reported adjusted half year net profit edging ahead of last year while overall sales slipped slightly, and is expecting only gradual improvements in its market.

The company today said its adjusted net profit for the period from August 3 to January 31 rose 0.4 percent to $57 million, while bottom line profit rose 17.3 percent to $57.4m.

Revenue slipped 0.5 percent from the comparable period a year earlier to $918.9m. After adjusting for discontinued activities, the company said sales were up 0.7 percent.

Group chief executive Ian Morrice said recovery in overall retail spending remained patchy with some specialist sectors seeing quite a bounce-back from the recessionary levels of 2008/9.

"Unlike previous recessions, this recession led to people trading out and postponing expenditure, as opposed to trading down. You can see that coming through in some of the higher ticket and specialty retail categories," Mr Morrice said.

Those included appliances, clothing, soft goods, footwear, and the recreational goods.

"To some extent that's at the expense of the department store sector as a whole."

Mr Morrice also alluded to the increasing competition faced by department stores compared to earlier in the decade.

During the past five or six years, the non-food retail market had seen a change in where consumers were spending their money, he said.

Considerable new retail store space had been added, particularly in the hardware sector, with shoppers' choice also expanding in the number of stores selling clothing, softgoods and footwear.

The department store sector had not seen that level of growth, Mr Morrice said.

For The Warehouse red sheds division half year sales of $821m were flat, after adjusting for $11.3m of discontinued fresh food and liquor sales. Operating profit for the half year was down 3.2 percent to $78.7m.

The Warehouse Stationery blue sheds segment reported sales up 8.7 percent to $96.2m, with operating profit up 139.8 percent to $3m.

For the whole of the 2010 financial year, the group is expecting adjusted net profit to be similar to that of last year.

Chief financial officer Luke Bunt said The Warehouse expected the market to remain difficult, with only gradual improvements in the underlying non-food retail sector.

While recent improvements had been reported in consumer confidence, issues remained around employment and unemployment and the nature of the improvement.

"We believe the sustainability of that remains uncertain," Mr Bunt said.

"The underlying market remains relatively difficult, and in our view is likely to continue to be promotionally driven during the course of this year."

In a strategy update published today, the group said it was considering building five to eight new or replacement red shed stores during the next five years, increasing total store space by up to 26,000sq m.

It was also planning seven to 10 new and replacement Warehouse Stationery stores to achieve national coverage.

Since 2004, after a period of rapid growth, The Warehouse Group had consolidated its activities, and had not grown its space significantly in either the red or blue sheds businesses, Mr Morrice said.

It had been testing the sale of fresh food and liquor in the department stores, and identifying the optimum size for the stationery business.

The company had focused on strengthening its balance sheet and for the past three years in particular had achieved respectable earnings per share and return on equity metrics, he said.

Along with identifying space growth opportunities for both the Warehouse and Warehouse Stationery, the company would also not discount making acquisitions, although it had no immediate plans to do so.