The Warehouse: Will a shake-up save it?

The Warehouse Group has posted the first loss in its listed history, and while CEO John Journee is confident the business can be returned to its former glory, analysts are split. Photo / NZME

Two analysts have downgraded ratings on The Warehouse Group in the wake of the retailer’s first annual loss in 42 years, unconvinced of the company’s turnaround prospects in the next year.

Last Thursday New Zealand’s largest retailer announced a net loss of $54.2 million in FY24, significantly lower than the $29.9m profit in FY23 as it battled cost-of-living pressures and stiff competition.

Interim chief executive John Journee has promised a shake-up in the product range at the red sheds and a focus on leveraging its 30,000 business customers more effectively.

He also believes that a switch in the group’s operating model, from agile to retail, and a return to individual leadership and retail teams for Warehouse Stationery and Noel Leeming will help re-establish the group’s market positions.

But Forsyth Barr downgraded its rating from neutral to underperform.

Analysts Paul Koraua and Rohan Koreman-Smit believe the market will wait for “tangible signs of improvement before it starts to believe in a turnaround story”.

The pair identified three investment risks to the business: the speed of its turnaround strategy, its approach to capital allocation and the wider macroeconomic picture affecting retailers.

The red sheds are also of particular concern to Koraua and Koreman-Smit, pointing to the business’s continued market share decline, and its transfer to the ever-growing presence of Kmart.

They also were critical of its cost of doing business, emphasising the need to control costs as part of its strategy moving forward.

Craigs Investment Partners analyst Kieran Carling also downgraded its rating from neutral to underweight.

He pointed to The Warehouse’s mix-shift towards grocery, declining gross market trends, recent product misses and poor execution as key downsides within the market.

However, he did acknowledge that a potential takeover presented some upside risk should the proposition ever be realised.

A proposed offer by founder Sir Stephen Tindall and a private equity firm to take the company private faltered last month after it failed to get support from another significant shareholder.

Neutral for some

But not all were so downbeat.

Jarden analysts Guy Hooper and Nick Yeo weren’t surprised by the group’s results, expecting sales decline and operating leverage weighing on earnings, maintaining their neutral rating.

The pair were supportive of the direction of the business, including the closure of TheMarket.com, selling off Torpedo7 and the refresh of its management team.

Hooper and Yeo said the decisions pointed to a more disciplined approach to capital allocation by the group in future.

The Warehouse particularly has opportunities to fix itself from within according to the pair, with product discussions and supply chain fixes promising.

However, culture changes and product refreshes both take time, and the analysts acknowledged that the business’ track record makes them hesitant to see improvement.

While also remaining neutral in its advice, Macquarie analyst Warren Doak didn’t hold back criticism towards the underperforming red sheds.

Doak said The Warehouse suffered from controllable retailing errors across the board, in its product offering, price point, grocery strategy and sales footprint.

“It has consistently compounded macro headwinds with internal missteps and poor execution,” Doak said.

Doak believes The Warehouse has work to do if it is to restore its credibility with investors.

The group will share a first quarter FY25 trading update on November 8, 2024.