The Warehouse profit slumps 36 per cent

The Warehouse today posted a 36 per cent fall in full year profit, as it slashed the value of its troubled Australian offshoot and reported flat sales.

The discount retailer booked a net after tax profit of $39 million for the full year to July 31, compared with $61m a year earlier. Revenue of $2.23 billion was flat on last year.

Excluding the $32.9m non-cash writedown, the full year net operating profit after tax was $71.9m, at the higher end of an earlier earnings guidance of $66m to $71m.

The profit announcement offered little update on the future of The Warehouse's loss-making Australian division. The retailer revealed in June it was looking to merge its troublesome Australian "Yellow Sheds" chain with rival Millers' Crazy Clarks and Go-Lo outlets for a potential sale.

Today it said discussions were continuing "with a number of parties".

Analysts had hoped The Warehouse would announce a clean break from the business, into which it has sunk $300m since entering fiercely competitive Australian market in 2000.

It has struggled to gain traction against the dominant Australian players, Coles and Woolworths.

The Australian division reported a turnaround during the period, posting a much smaller loss of A$5.4m , compared with A$32.3m a year earlier.

The Warehouse chairman Keith Smith said the retailer had made some "tough decisions" during the period as it attempts to d efend itself from tough competition, both across the Tasman and in its core home market.

Sales at The Warehouse's flagship New Zealand "Red Sheds" business rose 0.4 per cent during the year to $1.5 billion, but earnings before interest and tax (ebit) declined 8.4 per cent to $138.6m due to a poor first half.

Chief executive Ian Morrice said the retailer had faced a dropoff in sales following a decision to focus on everyday best price, rather than short term discounting.

He added that this was part of a strategy to achieve "long term sustainable profit growth".

The retailer is also experimenting with more fashionable products and new store layouts, opening a concept store at Te Rapa, Hamilton, in July.

Innovations include a Grab and Go section offering bread, milk, eggs, magazines and heat-and-eat meals, five information kiosks, wider aisles and a service squad of six dedicated helpers for shoppers.

Mr Morrice said response to the store had been positive.

"Since opening, the Te Rapa store has performed beyond expectations and customer feedback has been very positive," he said.

The performance of The Warehouse's stationery division was "disappointing", with flat sales and a significant drop in earnings, due largely to inventory write-downs.

The division had a significant improvement in the second half, with sales 4.7 per cent ahead of last year and second half ebita up 16.6 per cent.

The Warehouse will pay a final dividend of 4 cps , unchanged on last year.

Shares in the company closed yesterday at $3.93, down 2c, having rallied as high as $4.05 earlier in the week on hopes a sale announcement of the Australian business was imminent.

- NZPA