Sales rise boosts Red Shed forecasts

Ian Morrice at Sylvia Park.

The Warehouse plans to open a second hypermarket by Christmas, chief executive Ian Morrice said yesterday as the company revealed a sharply higher full-year profit forecast.

After-tax earnings for the year to July 30 are now expected to be 12 per cent higher at between $95 million and $99 million, buoyed by strong May and June sales, growing profit margins and lower interest costs.

The forecast included a $1 million profit on the disposal of property, but not the pre-tax loss of $88 million on its troubled Yellow Sheds in Australia, sold for A$92 million ($89 million) in November.

Including that loss, net profit for the year to July would be between $28 million and $31 million, it said.

A 27 cent leap in the company's share price to $5.04 last night followed a 16 cent fall on Wednesday as supermarket co-operative Foodstuffs completed its $151 million raid for 10 per cent of the company.

A month after its 12,500sq m 'Warehouse Extra' store opened at Sylvia Park, Morrice has fully approved the hypermarket format - a grocery, general merchandise, liquor, pharmacy, bakery and cafe under one roof.

"From our perspective we've pretty much delivered what we expected in opening month, building on the upside that you'd expect from a new location like Sylvia Park," he said.

Customer response to the convenience of the all-under-one-roof format had "exceeded even our expectations" and given the company confidence to take the format to other locations.

"The real test will come when we can convert a couple of existing stores and see what impact it has on our existing business," said Morrice.

A decision on the next location was expected around the time of the company's annual result in September.

Morrice played down comments from Foodstuffs - the second largest Warehouse shareholder after founder and 51 per cent shareholder Stephen Tindall - which cast doubt on the success of hypermarkets in New Zealand.

Foodstuffs managing director Tony Carter said the jury was out and ultimately the customer would decide.

"We on the other hand have decided it is what the customer wants and adding food to our offer is going to be something customers are keen to have," said Morrice.

The Warehouse revised its profit forecast after completing its June stocktake on Sunday.

Although sales were gradually improving, Morrice hung most of the improvement on a raft of initiatives started last year which were driving efficiency and improving margins.

This was most obvious in apparel, where it was selling more earlier in the season at full price, so there was less to mark down later in the season.

Despite a slow start to winter, sales for May and June were 5.9 per cent ahead of the same time last year, with seasonal products such as manchester, apparel and appliances top sellers in the colder weather.

Warehouse Stationery's sales were 3.1 per cent ahead of the same time last year, due to the popularity of business machines and office furniture.

Morrice said he had not spoken to Foodstuffs about its desire to explore joint initiatives.

He had no reason to believe Foodstuffs had ambitions beyond being a passive shareholder and did not expect any impact from their substantial stake in the company.

"They've stated they don't intend to try to get involved in how we run the business. As long as that remains the case that shouldn't affect us."

Equities manager at Tyndall Investment Management Rickey Ward said although Foodstuffs' stake would block a rumoured takeover of The Warehouse by foreign grocery giants such as WalMart or Tesco, it would not stop them taking control of the firm.

"If someone was successful in acquiring Tindall's stake and getting control of the company they [Foodstuffs] would have to ask themselves the question: Do they want to be a 10 per cent shareholder of a company they have no control over ... that's the call they would have to make."