Singing the blues at Red Sheds

The country's biggest retailer, The Warehouse, yesterday became the latest to sing the summertime blues.

Its shares touched a five-year low after a profit downgrade - dropping 9c to $3.50. But they bounced back to close down by only 1c.

Macquarie Equities investment adviser Arthur Lim said investors knew the company had a genuine explanation for its difficulties - the awful weather.

They were also prepared for bad news after downgrades by rival retailers Postie Plus and Briscoe Group in the past month that cited poor weather and discounting.

The Warehouse said sales of summer clothing, sporting goods, toys and gardening products at the Red Sheds - the New Zealand outlets - were worse than expected in November and December's unseasonable cold.

The Red Sheds account for most of the company's revenue.

At institutional investor Walker Capital Management, principal Craig Brown said some of The Warehouse's past problems were of its own making.

Not this time.

"The reality is people aren't going to buy some of the summer apparel and outdoor furniture when the weather's not flash."

Walker Capital owns Warehouse shares but Brown saw no reason to sell.

Macquarie Equities retail analyst Warren Doak said poor toy sales probably had more to do with competition from retailers Kmart and Farmers than bad weather.

In mid-year, Kmart, Farmers and The Warehouse offered up to 35 per cent off toys with interest free lay-by terms.

Kmart and Farmers also had aggressive post-Christmas sales.

He said consumers were also turning away from traditional toys to the likes of Xbox, PlayStation and iPod.

The Warehouse said profit for the six months to January 30 would be between $50 million to $54 million - a drop on last year of between 3 per cent and 10 per cent.

Full-year earnings would be between $66 million and $71 million - a drop of up to 19.5 per cent on expectations in September last year.

The company said margins were down because of changes in the mix of sales and higher fixed costs.

November and December same-store sales fell by 1.3 per cent.

Overall, sales rose by 2.8 per cent.

On a brighter note, the company's Australian business - the Yellow Sheds - remained on target for a big cut in full-year operating losses. Last year, they were A$32.2 million.

The company's $3.50 share price in trading yesterday morning was the lowest since June 1, 1999.

New chief executive Ian Morrice has launched a revamp of the Red Sheds in an attempt to reduce the clutter, lift brand quality and find better store locations.

Morrice said the company would not exit any seasonal ranges because of this summer's problems.