KEY POINTS:
The rollout of The Warehouse Extra grocery stores will be on hold for at least 12 months, the company said yesterday, as it announced its full-year result.
The three Extra stores already operating - at Whangarei, Mt Wellington and Te Rapa - were profitable but were not yet
delivering the returns needed to justify the grocery offering, chief executive Ian Morrice said.
The company had previously said it hoped to have 15 grocery outlets operating within five years.
Morrice said he had confidence in the Extra model but that it was prudent to put expansion of the stores on hold while new ideas were tested to get costs down and improve returns.
The Warehouse Group technically quadrupled its profit to $115.5 million in the year to June 29. But the result was boosted by one-off gains on the sale of Australian operations and its Te Rapa property.
Excluding abnormal items, the net profit came in at $97.9 million, up 1.8 per cent on 2006. Sales revenue from continuing operations was up by 2.4 per cent to $1.76 billion.
Same store sales - the measure of how much each store is generating adjusted to exclude new store growth - were up by 2 per cent. Earnings before interest and tax were up 2.6 per cent to $147.2 million.
Morrice described the performance as creditable - given the company had continued to invest in new product categories and store improvements during what had been a difficult year for retailers.
The outlook for next year was cautious, with the company saying that it hoped to match this year's earnings but was unlikely to beat it.
The level of consumer demand was quite unpredictable at the moment and costs were expected to rise, Morrice said.
"There's a lot of volatility and it makes it difficult for a retailer to predict into the future. And we never like to get too carried away with the crystal ball this side of Christmas."
The company was not prepared to reduce its level of investment at the expense of short-term gains, Morrice said.
"We've got to look beyond the short-term earnings profile and look at the long-term earnings and prosperity of the business."
He would not comment on speculation about the ownership issues still surrounding the company other than to say his team remained focused on the operational job at hand.
Both major supermarket chains, Foodstuffs and Woolworths, have expressed an interest in buying The Warehouse. They will go to the High Court next month to try to overturn a Commerce Commission ruling blocking the acquisition.
"We think these results demonstrate that we're not taking our eye off the ball," Morrice said. "It's important we keep pressing on with the strategy that we've been putting in place."
Forsyth Barr retail analyst Guy Hallwright said yesterday's result was largely in line with expectations but the outlook for the year ahead was more pessimistic than many had expected.
The decision to put the expansion of Extra stores on hold looked sensible, he said.
"They actually talked about a big lift in sales in that transformed store in Whangarei. But they're still not hitting their targets and it sounds like the costs have blown out as well."
But it was unrealistic to expect to launch Extra and have it performing well straight away.
"Wal-Mart spent five years perfecting the grocery concept before it rolled it out.
"And then it was a huge success."
Shares in The Warehouse were steady yesterday on $5.95.
