The Warehouse Group has downgraded its earnings forecast amid an uncertain economic recovery and slow winter sales.
But while its interim chief executive John Journee is still confident its turnaround plan is making progress, one analyst has a dire warning for what the year ahead could bring for the Red Sheds.
The Warehouse Group is now expecting its 2025 full-year earnings before interest and tax for the 53 weeks to August 3, 2025, to be in the range of a $5 million loss and a $5m profit.
In the business’ 2024 full-year results, it reported ebit of $28.9m, at the higher end of its predicted forecast.
The Warehouse said it had seen sales growth of 2.2% in the third quarter compared to the same period last year but replicating that in the fourth quarter had been challenging.
Of particular concern was the performance of its winter products across all categories, including blankets, heaters and apparel.
The warmer start to this year’s winter season has meant the sales performance in those categories has been underwhelming, forcing The Warehouse Group to lower its margins in order to compete in a highly promotional environment.
Journee said sales had finally strengthened when colder weather arrived in June.
“Now that the cold has set in, our sales momentum has returned, with Q4 to-date sales ahead of the same period last year. While this is encouraging, the current market conditions are impacting margins,” Journee said.
“We are therefore updating our full-year ebit guidance to reflect these conditions.”
The wider economy is also having an impact on the business, as discretionary consumer spending continues to remain weak while the timing of New Zealand’s economic recovery remains uncertain.
Despite this, Journee said he was confident that the business continues to make progress on its turnaround plans.
“We have strengthened our financial discipline, including prudently managing costs, inventory, working capital and net debt. We continue to streamline operations, update legacy systems and improve customer conversion with new product ranges and better value.
“We are confident that the steps we are taking will drive a much-needed improvement in performance over time once fully scaled.
The Warehouse Group will release its 2025 full-year results on October 2.
Forsyth Barr analyst Paul Koraua said the update was disappointing but acknowledged the Warehouse wasn’t the first retailer to point out poor winter sales.
“In the grand scheme of things a $5m downgrade is not huge when you do $3 billion in sales. It doesn’t take much in the top line to make that fall through,” Koraua said.
“Obviously it’s been a bit challenging. I think the broader thing that’s been heard in the sector is just the amount of promotional activity hurting margins.”
Koraua said the business would need to fight to break even by the end of the financial year in just 30 days, but was concerned about what it could mean for the business’ year ahead.
Low consumer confidence and spending appear to be sticking around longer than hoped, but Koraua said the anticipated opening of Ikea before Christmas this year was a bigger issue.
“If you’re The Warehouse and you’ve had a tough first six months of the calendar year, you’re looking at recovering it all at Christmas. But then you’ve got Ikea opening.
“2025 is basically a done deal, they’re going to be making a lot less than they did in 2024. It’s just how much longer the pain lasts through 2026 and how long it takes them to recover.
“What is the new normal for The Warehouse? That’s the question.”
Koraua said The Warehouse wasn’t the only retailer facing pressure. He expected its biggest competitor Kmart to have also experienced a drop in performance, although it still continued to open new stores.
Koraua said it could be the first time the Red Sheds have been in a loss-making position since 2001.
Tom Raynel is a multimedia business journalist for the Herald, covering small business, retail and tourism.