Australian stores drag down sales at Warehouse

The Warehouse's Australian stores have continued to drag down gains made at its New Zealand operation, resulting in flat first-quarter sales.

Sales were $490.8 million for the 13 weeks ended October 30, a 0.5 per cent rise from the previous year, the country's largest publicly listed retailer said yesterday.

Group chief executive Ian Morrice blamed the slump in Australian sales on slipping consumer confidence due to fuel price increases and a sluggish housing market.

Sales at the 122-store Yellow Shed chain were down 8.7 per cent to A$105 million ($112.7 million) compared with the previous year. Australian same-store sales were down 6.5 per cent in the quarter.

Morrice declined to offer more detail on the fate of the underperforming Australian unit, other than to say the unit is on track to break even this year. But analysts said yesterday that an announcement on the future of the Australian chain could come within a few weeks.

In June, The Warehouse confirmed that it was in talks with Australian rival Miller's Retail about the unprofitable stores.

Sales at the company's 85 New Zealand stores increased 3.2 per cent to $326 million compared with the previous year. Same stores sales rose 0.2 per cent, their highest level in five quarters.

"This is a credible outcome in the current retail environment. Our overall sales were slightly ahead of plan, in part due to the higher levels of seasonal clearance activity as we make room for new products and ranges," said Morrice.

Warehouse shares were up 3c to $4.11.

Macquarie Equities analyst Warren Doak said the New Zealand results were "pleasing" considering the discount retailer was competing with aggressive discounting by rivals.

"To be in positive territory was pretty pleasing," said Doak.

Sales at the company's New Zealand stationery business increased nearly 3 per cent to $50.2 million compared with a year earlier. Warehouse Stationery's same-store sales declined 1.6 per cent in the quarter.

Morrice said The Warehouse expected consumer spending to remain tight well into the Christmas shopping season. The company said it was well-positioned to weather the pull back in discretionary spending by offering better prices for good quality merchandise. During the quarter, it also noticed "positive signs" in apparel, housewares and electronics.

On Thursday, the Auckland-based company said it had set up a joint venture to sell beer and wine through its Fraser Cove store under the banner Warehouse Cellars. The joint venture is 90 per cent held by the company and 10 per cent by Reliance Wines, owned by the Aster family. The trial in the Tauranga store is planned for next year.

During the quarter, the company also updated its 23-year-old logo and began a store revamp, first tested in Te Rapa. It opened a new store in Palmerston North, reflecting these improvements in layout and fixtures, and a new Lower Hutt store is expected to open within the next few months.

The Warehouse moved into Australia in 2000 with the A$118 million purchase of 115 Crazy Clints and Silly Solly's stores. The company expected the Australian chain to contribute 30 per cent of profit by 2003, but the unit has never met targets.