The Warehouse downgrade: What earnings slide signals for the economy

The Warehouse has downgraded its earnings forecast for the current financial year. Photo / NZME

Shares in The Warehouse slumped after the retail group issued a grim earnings forecast, which analysts said was emblematic of the current state of the economy.

The retail group now expects 2024 sales from continuing operations to be between 6-7% lower than the prior year.

The Warehouse also expects earnings before interest and tax - excluding the loss from discontinued operations and any potential restructuring costs - to be in a range of $22 million to $30m, compared with $83.4m last year.

“Continuing operations” excludes Torpedo7, which sold for $1 in February, but includes results from TheMarket.com, which The Warehouse wants to sell.

Craigs Investment Partners investment director Mark Lister said the update reflected just how difficult conditions are in the retail environment, and in the economy in general.

By mid-afternoon the company’s share price was trading at 98c, down 9c or 8.4% on Friday’s close, having lost 41% over the past 12 months.

The once highly sought-after stock is now well down from its December 2022 peak of around $3.50.

The group said retail trading across New Zealand was challenging, with increasingly subdued consumer demand further compounded by mild winter weather, resulting in lower-than-anticipated fourth-quarter sales.

Interim chief executive John Journee said retail across New Zealand was under pressure, and The Warehouse was no exception.

“Market conditions and cost of living pressures have continued to be challenging into our fourth quarter and we expect these conditions to continue through to our year-end,” he said.

“We are taking decisive action internally to address areas we can improve.”

The company was exercising tighter cost control and there was a “laser focus” on the core brands - The Warehouse, Warehouse Stationery and Noel Leeming.

Journee replaced Nick Grayston, who was brought in to turn the company around in 2016.

Grayston resigned in May, with the company saying “fresh energy” was needed for a change in direction.

Lister said the forecast earnings slump should not be a great surprise given the state of the economy.

“The Warehouse is a company that is right at the forefront of the economic activity,” he said.

“As a retailer exposed to discretionary spending, they are going to be one of the first types of companies that will feel the brunt of the slowdown.”

Lister said it looked like April, May and June were slow months, when retail took a turn for the worse.

“Consumers have put their wallets away.

“People don’t have job security, unemployment is rising, and there is no respite on the interest rate front.

“House prices are falling, which tends to have a reverse wealth effect.

“All these things have conspired to put The Warehouse in a difficult spot, and the share price is reacting.”

Lister said there was little comfort for long-suffering Warehouse shareholders.

“It’s hard to see any respite on the horizon because I think the economy will be in this difficult position for some time yet.”

Data out last week showed the economy eked out a 0.2% increase in GDP over the March quarter, but economists expect the current downturn to continue for some months.

The Warehouse will report its results for the July year on September 26.

Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.