Red sheds' sales down 2.6 per cent

By PETER GRIFFIN


Shares in the country's largest retailer, The Warehouse, sunk to a five-year low yesterday after it disclosed weak trading at its core New Zealand division.

Same-store sales at the New Zealand "red sheds", which contribute most of The Warehouse's revenue and profits, dipped 2.6 per cent for the three months to October 31.

Amid concern the drop indicated the division was losing momentum and that the retail sector overall was facing tougher times ahead, the shares closed down 19c to $3.85, knocking $53 million from the retailer's market value.

Overall sales for the quarter, including the contribution from the Warehouse Stationery and the troubled Australian arm, rose from $483 million to $488.4 million.

The red shed's clothing business, which accounts for between 20 and 25 per cent of total New Zealand sales, was hit by a cool start to spring.

"We took the decision in winter to clear out our winter products aggressively. Had the weather fallen in our favour it might have been the best thing to do," said chief executive Ian Morrice, who took the reins in August.

Instead, The Warehouse saw sluggish sales of summer clothing. Other "non-durable" goods - food and household products - had also been slower to move.

"Some of the categories are really struggling more than others," said Morrice, who added that the same period last year had benefited from the opening of two stores.

The Australian division, which has struggled to foot it in the highly competitive Australian market, improved its profit margins. Same-store sales for the quarter fell 2.4 per cent.

Morrice said the group had good stocks of merchandise going into the key selling period of the year.

"Our Australian business going into Christmas has never been in as good shape."

Paul Richardson, equities portfolio manager at BT Funds Management, said pressure on retail margins and strong competition were denting the fortunes of the retail sector.

The Warehouse, in particular, was facing stiff competition from rivals copying its model. "The Warehouse stores are not as differentiated any more, the model is not as safe," said Richardson.

Tyndall joint New Zealand equity manager Rickey Ward told Bloomberg News: "People are questioning what's really happening to the anchor of this company. As a result, I think most people are looking now to downgrade their full-year target for earnings."

Both Tyndall and BT have been selling down their Warehouse holdings.

Analysts were less concerned with a dip in sales in the Australian stores. They are now waiting to see how Morrice tackles lower sales at home and the task of making the Australian "yellow sheds" profitable.

"He's a tough Scot, he'll probably clean things out but you can expect more bad news before good," said Richardson.

New Zealand Retailers Association chief executive John Albertson said he thought consumer confidence, a major determinant of consumer spending, was still buoyant despite rising interest rates.

"The slow creep in interest rates doesn't help," he said. "With the surpluses the Government is running, it's appropriate for the finance minister to think about tax cuts."

Morrice revealed that The Warehouse would be making a big push into selling electronics goods in the next few months, starting with digital cameras in time for Christmas.

Retailer Briscoe Group also dipped yesterday, down 6c to $1.31.