Warehouse Group, the biggest retailer on the NZX 50 Index, reported a 14 per cent drop in full-year earnings, meeting its own guidance, and said it expects retailing to face "mixed" trading conditions in 2013.

Profit before one-time items was $65.2 million in the 12 months ended July 29, down from $76 million a year earlier, the Auckland-based company said in a statement. Sales rose 3.9 per cent to $1.7 billion.

In May, the company said full-year adjusted net profit after tax would be $62 million to $66 million and analysts had been expecting Warehouse to better its guidance with earnings of $68.2 million. Net profit jumped 15 per cent to $89.8 million, reflecting a one-time gain from property sales.

The retailer's operating margin shrank to 5.6 per cent from 6.8 per cent, with the bulk of the contraction coming from its Red Sheds, where the margin shrank 150 basis points to 5.3 per cent. Warehouse said adjusted profit will grow in 2013 though it was too soon to give specific guidance.


"Key elements of the group's strategic plan including investments in store experience and multichannel, together with category and margin dollar growth strategies should ensure adjusted profit in FY13 is above that recorded in F12," said chairman Graham Evans.

The company kept its final dividend unchanged at 6.5 cents. The shares last traded at $2.90, and have gained 15 per cent in the past three months. The stock is rated a 'hold' based on the consensus of eight recommendation compiled by Reuters, with a price target of $2.68.

Sales at the Red Shed rose 4.2 per cent to $1.5 billion, while the operating profit fell 18 per cent to $80.9 million. Same-store sales rose 3.8 per cent.

Its Warehouse Stationery chain had a 2.6 per cent gain in sales to $206.6 million while operating profit declined 2.6 per cent to $9.8 million. Same-store sales rose 3.3 per cent.

Inventory across the group rose to $309.4 million from $262.7 million. Operating cash flow fell to $44.5 million from $96.9 million a year earlier, reflecting "increased investment in inventory to improve in-store stock availability and support growth categories," it said.

In the latest period, the company recognised a gain of $18.2 million from the sale of property and $7.3 million from the release of warranty provisions.