Clothing protects Warehouse from Aussie losses

The Warehouse result is expected to be encouraging for the retail sector. Picture / Richard Robinson

Full year results for The Warehouse are expected to show the retailer recovered some of the costs from exiting its Australian stores last year.

The result to July 31 has been buoyed by sales during the the long, hard New Zealand winter.

When it released its half-year results in January, the company said it faced an extraordinary cost of $83 million to $88 million in the 2005-2006 year after withdrawing from the Australian "Yellow Sheds" investment.

Analysts this week estimated the profit before extraordinary costs would be close to the upper end of The Warehouse's own estimates of $95 million to $99 million, suggesting an increase in margins.

But after accounting for the Australian loss, net profit is expected to be about $30 million, down from $39 million the previous year. Analysts say trading in the fourth quarter will have had a big impact on final results.

All retailers with apparel benefited from heavy demand during the harsh winter and The Warehouse had improved sales in May and June.

Guy Hallwright of Forsythe Barr said The Warehouse Group may have benefited from the decision to focus this year on apparel - which now provides about 20 per cent of revenue.

"What is not clear is the degree that The Warehouse had surplus stock such as heaters from 2005, which was a mild winter, and how they were valued and affected margins," Hallwright said.

The Warehouse result will be encouraging for the retail sector which faces a softer market and high personal debt among consumers.

But one analyst, who asked not to be named, said spending would hold up as long as house prices did, and there were no signs of an imminent slide. The Warehouse share price spiked over $5 in July when Foodstuffs took a 10 per cent stake in the company, but there has been no merger and acquisitions activity since then.

Shares in the company closed up 7c at $5.15 yesterday.

The Foodstuffs buy-in appeared to be based on a takeover by a competitor, but there were no signs of one being imminent, said Hallwright.

The Warehouse is a significant importer so would have been affected by falls in the value of the New Zealand dollar which been above US70c.

The kiwi dropped as low as US60c earlier this year, but by yesterday had recovered to around US65c.

On the face of it The Warehouse is vulnerable to currency fluctuations.

The company has said competitors were also affected and fluctuations were reflected in the prices charged to consumers.

Analysts say the company's buoyant share price is helped by the cautious approach of managing director Ian Morrice.