Warehouse Group sales improving

Red Shed sales continued to grind higher in the three months ended April as customer numbers and basket sizes improved, Craigs Investment Partners broker Chris Timms said yesterday.

The Warehouse Group, the owner of the Red Sheds, reported improved group sales of $604 million, up 8.6%, for the quarter.

Same-store Red Shed sales were up 3% at $367 million, Blue Shed sales were up 6.1% at $68.2 million, Noel Leeming sales were up 10.9% at $146.9 million and Torpedo7 sales were up 12.6% on a pro forma basis at $22.7 million.

Mr Timms said now the board was comfortable with the sales momentum, after a significant reinvestment strategy, the focus had shifted to delivering operating leverage and bottom-line returns - the key end point for any business strategy.

The commentary yesterday was a significant change from the first quarter which said the group would continue to invest in growth at the expense of earnings in the short-term, he said.

After significant margin pressure at the Red Sheds in the first quarter, the second and third quarter margins were ahead of the previous corresponding periods, he said.

The Blue Sheds would go close to achieving $250 million in sales in the 2014 financial year.

''The consolidation of Noel Leeming and Bond and Bond stores is performing well but investment will maintain pressure on margins.''

Mark Powell was a ''stunning chief executive officer'' who had surrounded himself with a good team, Mr Timms said.

Mr Powell had already increased the wages of group staff before expressing concern about the amount of his salary.

''We still have questions about the online roll-out but we have lifted our share price target to $3.64. The adopted strategy is bearing fruit,'' Mr Timms said.

Mr Powell said in a statement the group was investing in Torpedo7 to create a leading multichannel outdoor, adventure sport retailer.

''We continue to be excited by the growth opportunities we see in this area of our business.''

Chairman Ted van Arkel said the group strategy continued to develop in the quarter.

The announcement of the financial services strategy and associated capital raising would help support the growth momentum being seen.

The board was confident the strategic focus would deliver long-term results for shareholders in a retail environment that was continuing to evolve as customers' buying habits changed, Mr van Arkel said.

At a glance
The Warehouse Group Ltd comprises 91 Warehouse stores, 76 Noel Leeming stores and 64 Warehouse Stationery stores in New Zealand and several online businesses. The company had turnover of $2.2 billion in the 2013 financial year and employs more than 10,000 people.


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