Group's result in line with update

The market yesterday welcomed what would otherwise be an average interim result from retailer The Warehouse Group, with its share price immediately lifting 8c to $4.

Craigs Investment Partners broker Chris Timms said the market was reacting to the company delivering a result in line with what was forecast in a flat post-Christmas market update.

"They said sales were flat and they have delivered a result in line with what they said."

An interim dividend of 17c a share, an increase of 1.5c due to the need to pay imputation credits, also helped boost investor confidence.

Forsyth Barr investment adviser Suzanne Kinnaird described the result as flat, in line with the broker's forecast and reflecting a difficult environment in which there has been a proliferation of specialty hardware, clothing and soft-good stores.

Warehouse Group chief executive Ian Morrice said the result showed the recovery in retail spending was patchy.

Some specialist sectors were seeing a significant bounce back, but department stores were not seeing the same level of recovery.

The Warehouse reported a net profit after tax for the period to January 31 of $57.4 million compared with $49 million for the previous corresponding period (pcp).

Excluding unusual items, the result was flatter, at $57 million compared with $56.8 million pcp.

The 2008 result included a $7.4 million post-tax charge, the result of exiting from fresh food and liquor.

Revenue for the period under review was $919 million, down 0.5%, but after adjusting for discontinued activities, including $11.3 million of sales in fresh food and liquor, total sales rose 0.7%.

The operating profit was down 1.2% to $83.22 million, while earnings before interest and tax rose 14.5% to $85.3 million.

The profit before tax was 17.7% higher at $81.9 million versus $69.6 million pcp.

Earnings per share were up 17%, at 18.6c compared with 15.9c pcp.

The Warehouse business entity reported flat sales of $821 million and an operating profit of $78.7 million, down 3.2%.

Mr Morrice said the company continued to maintained its margins in the second half of 2009 as it had in the first six months, although a planned increase in second-half sales did not come about, meaning more inventory had to be cleared, which affected gross margins.

Ms Kinnaird said growth would come from sales rather than margins, and she said while the result was flat and the growth outlook modest, the business was stable.

Warehouse Stationery had a strong result with sales up 8.7% to $96.2 million and the operating profit up 139.8% to $3 million.

Mr Morrice said Warehouse Stationery had benefited from increased customer visits and sales across most categories.

The result was better than expected, but Ms Kinnaird said margins were still low, at 3%.

The company believed 6% was possible.

Directors said the Warehouse Group was on track, barring material changes to trading conditions, to report an adjusted full-year net profit after tax in line with the $85.2 million reported for the 2009 year.

Ms Kinnaird said she was taking a cautious outlook, given the company's comments about the sustainability of consumer confidence.

She said any retail improvement would be driven by promotions and she expected the second-half dividend to be flat, compared with last year, at 5.5c.