Full-year reported profit plunges but change under way bodes well

Photo: ODT

The Warehouse has posted a more than 70% decline in reported profit because of $41.9 million in writedowns from the sale of its Financial Services division and $12.4 million in restructuring costs.

Revenue for the year to July rose 1.9% to $2.98 billion, earnings before interest and tax gained 16.3% to $107.2 million and after-tax profit decreased almost 74%, down from $78.3 million last year to $20.4 million.

Adjusted net profit after tax was down 7.7%, from $64.1 million last year to $59.2 million.

Warehouse shares fell 0.5% to $2.01 after the announcement. The final dividend of 6c took the full year to a repeat 16c.

The Warehouse Group chief executive Nick Grayson said it was encouraging the second-half retail performance delivered 13.9% growth in adjusted net profit after tax, despite the internal distractions during the period of transition.

"The next year will see exciting progress with our digital strategies as we position the business to compete successfully in the rapidly changing retail environment," he said.

Forsyth Barr broker Suzanne Kinnaird said the adjusted after-tax profit was down 1% on last year but was 6% ahead of expectations, largely underpinned by lower tax and interest, with earnings before interest and tax 1.5% ahead of expectations.

"The result saw an improved second half across the majority of its retail chains, with a return to positive growth in Red Sheds the key positive, relative to our expectations," she said.

The Warehouse had not provided full-year 2018 financial guidance, given the importance of Christmas trading and the uncertainty created by the strategic change under way.

"The company is facing increasing competitive pressure, albeit internal changes and strategies should help to make the business leaner," she said.

Warehouse Group chairwoman Joan Withers said the sale of Financial Services and an $11.2 million Newmarket property had improved the balance sheet and ability to fund change in the next two to three years.

"We have made significant headway in transforming the business over the last year and the board is pleased to maintain a dividend payout to shareholders in line with previous years," she said.

The company said the earnings drag of Financial Services had been removed and in the short term there would be one-off investments and costs that would drive the business transformation.

That transformation would include completing the transition to "everyday low prices" in The Warehouse, more "store within a store" trials and changing its IT systems to modern cloud-based systems.