A new three-year strategy, implemented by its board and new chief executive Nick Grayston, who started in early 2016, has been unveiled and so far credited for the ahead-of-guidance result, but the strategy’s lack of target details raised some flags for analysts.
Group retail sales for the year to July were up 5.6% to $2.92 billion on a year ago, the retail operating profit rose 19.2% to $111.2 million and reported after-tax profit was up 49.4% to $78.3 million.
While the Warehouse’s gross margin fell 30 basis points to 32.8%, its overall inventory was down by $8.8 million on a year ago to $501.7 million.
The Warehouse repeated last year’s 16c dividend. Its shares were up slightly at $2.95, following the announcement.
Craigs Investment Partners broker Peter McIntyre said the profit was above the guidance range of $61 million to $64 million, despite facing headwinds including foreign exchange, competition, a mild start to winter and one fewer trading weeks.
"The Warehouse managed to produce an improved operating performance in both halves," Mr McIntyre said.
With a major capital expenditure programme now complete, following a period of underinvestment and stabilising earnings performance, the Warehouse presented a new three-year strategy.
Mr McIntyre said the strategy focused largely on improved technology offerings, simplifying internal processes and developing a more agile supply chain, albeit with limited tangible detail provided yesterday.
Forsyth Barr broker Suzanne Kinnaird said the after-tax profit was about 4% ahead of expectations and at the top of the company’s guidance.
"The modestly higher-than-expected result was underpinned by lower depreciation and store earnings before interest and tax about 1% ahead of our forecasts," Mrs Kinnaird said.
The key focus of the result was the first look into the strategic plan of chief executive Mr Grayston.
"There is a clear focus on data and optimising the existing business," she said.
There were no benchmarks or financial targets disclosed, with the company focused on improving margins and return on investment, she said.
While the strategy made sense and did not sound capital-heavy, its execution would be critical and it was difficult for investors to monitor success or progress without targets, Mrs Kinnaird said.
Mr Grayston said the new trading strategies were delivering results and were good foundations to build on.
"Our task is to ensure that the business is a strong and profitable competitor in the future retail environment, which will look very different from the traditional retail business model that has served us so well to date," he said in a statement.
The Warehouse’s Red Sheds’ growth was up 4.1% up for the full year and operating profit was up 12.3% year on year.
Warehouse Stationery growth was up 6.5% for the full year, with operating profit increasing 12.3% from $12.7 million a year ago to $14.3 million.
Noel Leeming posted a strong lift in performance, increasing 87.6%, from $6.4 million last year to $12.1 million.
Torpedo 7 also turned around, with operating profit of $3.4 million a "significant improvement" on breaking even last year.
The Financial Services business, launched during full-year 2016, booked an operating loss of $3.4 million, compared with the previous $1.8 million loss.
That was in line with expectations and reflected the early-stage losses anticipated as the business starts to build scale, the company said.
Total Group online sales were $185.8 million, up 22.0% compared with last year to $185.8 million, which now represented more than 6% of total group sales.
