Warm winter gets blame for profit downgrade

Ted van Arkel
Ted van Arkel
Warmer autumn and winter temperatures have caused The Warehouse Group to downgrade its profit expectations from the guidance given in March.

Chairman Ted Arkel said while Noel Leeming, Warehouse Stationery and financial services were all performing in line with planned profit expectations, that was not the case with the Red Sheds and Torpedo7.

As a result, the group had revised its guidance down to a reported profit of $59 million to $62 million from the previous guidance of $67 million to $71 million.

The Red Sheds had been affected by unusual and sustained warm temperatures in autumn and winter.

''As a result, while sales in the Red Sheds are still above last year, sales of seasonal apparel and home products are below plan and are increasingly having to be sold at decreased margins to maintain seasonal sell-through and avoid end-of-season overstocking.''

Over the past three weeks, there had been ''a material deterioration in sales and margin versus the group plan'' in the Red Sheds, Mr Arkel said. It was likely the remaining winter season would see discounted trading in the market with limited opportunity for full margin sales.

The market conditions added further unpredictability to the remaining June and July trading environment.

Torpedo7 was at an early stage of its plan to be a leading multichannel outdoor adventure sports business, he said. The integration of R&R Sport, No 1 Fitness and Shotgun.co.nz had been well managed. But the integration effort had resulted in sales not yet reaching planned short-term levels.

''The revised guidance is representative of a particularly difficult seasonal trading environment.''

The reshaped group had developed a stronger base and opportunities for growth. In the next year, the focus would be on consolidating the changes, Mr van Arkel said.

Craigs Investment Partners broker Chris Timms said the 10% downgrade in profit guidance was significant and showed how important it was to have the right mix of products to offset effects of poor seasons.

Temperatures in the north of the North Island were still around 17degC to 19degC and Dunedin had not been hit by much bad weather so far, he said.

''This has happened in the past but now The Warehouse has multiple channels and is not only relying on clothing, although they still have Torpedo7 to deal with.''

There appeared to be no problem getting people through the doors, as sales were up, Mr Timms said.

The problem was having to discount products to get the turnover.

Shares in the group were sold down heavily after the announcement, before rebounding slightly.

Australian-listed electronic retailer JB Hi-Fi was another caught up in a spending slowdown, he said.

The company had not been immune from the well flagged deterioration in consumer spending. It was pleasing the tight guidance range set 10 months ago should be met and he expected sentiment to lift which should improve the trend.

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