Warehouse tips higher full-year

Retailer The Warehouse has tentatively said it expects to beat last year's adjusted after-tax profit of $65.2 million, but remains highly cautionary over crucial January sales and overall economic conditions.

Chairman Graham Evans told shareholders at the annual meeting yesterday that during the past 12 months underlying non-food retail sales had continued to show signs of gradual improvement, but the extent of that growth for the year ahead "remains uncertain".

"Although New Zealand's general economic outlook supports strengthening consumer confidence, a number of factors, both domestic and international, point to ongoing uncertainty and volatility," he said.

Craigs Investment Partners broker Peter McIntyre said The Warehouse was becoming "more aggressive" in adapting to the changing retail environment, in developing its online presence and dropping non-performing brands and replacing them.

"If a product is not delivering, The Warehouse is prepared to forgo a brand and get another elsewhere," he said.

The Warehouse expected a gradual improvement in New Zealand retail sales, but uncertainty in both domestic and global economies meant the extent of underlying growth remained unclear, Mr McIntyre said.

Forsyth Barr broker Tom Bliss said the refitted stores were beginning to show early indications of positive results, as same-store sales were up 3% "We're encouraged by the early positive signs from its reinvestment and revitalisation at its flagship chain, but we believe investors are likely to remain cautious until evidence of improving profits begins to emerge," Mr Bliss said.

While not giving further specific earnings guidance yesterday, Mr Evans said guidance would be updated in March when the half-year result was reported.

In the near term, earnings would be "significantly influenced" by trading performance over the critical January quarter, but the board had assessed that adjusted earnings for full-year 2013 "are likely to be higher than that achieved in full-year 2012", Mr Evans said.

In early September, The Warehouse reported a 15% increase in annual after-tax profit of $89.8 million, but that was boosted by a total of $25.4 million in one-off gains from property sales and the release of warrant provisions.

Without the one-off gains, The Warehouse's adjusted profit was booked at $65.2 million, in line with earlier guidance of $62 million to $66 million, but was 14% down on last year's profitMr Evans expected The Warehouse group to continue its "strong cash-flow performance", which would allow the company to retain the current dividend payout ratio of 90% and to fund its future capital requirements from existing facilities.

Mr McIntyre noted that within the store refit programme, 13 had been completed since February and 16 more outlets were expected to be completed in the second half of 2013.

Mr McIntyre said The Warehouse had "an easy win", in that its apparel division performed particularly badly in full-year 2012, excess inventory having to be cleared with significant discounting.

"We understand that apparel is trading ahead of last year and that inventories are in much better shape than the previous corresponding period," he said.



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