Warehouse issues profit warning

The Warehouse says first half profit will fall by as much 13 percent. Emilee Irving, 17 and Kevin Balding get ready for the opening of the Warehouse in Silverdale. Photo / Steven McNicholl

Shares in The Warehouse are falling after the retailer issued a post-Christmas profit warning this morning.

The Auckland-based company's stock is down 2.96 per cent, or 11c, in early trading at $3.61.

Budget retailer Warehouse Group is warning its first-half profit will fall by as much as 13 percent after strong Christmas sales failed to compensate for a margin squeeze in the first quarter, higher funding costs, and reduced rental income.

Adjusted net profit will be between $46 million and $48 million in the first six months of the retailer's financial year, to January, from $52.9 million a year earlier, the company said in a statement. Half of the reduction in first-half earnings was due to increased funding costs as the company reshapes its business and from a reduction in rental income, it said.

Total sales at the retailer's 'Red Sheds' brand rose 5 percent from last year's $1.59 billion in the period, with a recovery in gross profit margins in the second quarter after they shrank in the first quarter.

"We are pleased with how all of our retail brands traded over the critical Christmas period and the trading profit (the profit delivered by our retail businesses) is likely to be down only 1 to 2 percent in the half, recovering much of the ground lost in the first quarter," chief executive Mark Powell said. "This reflects the progress we are making as we reshape the group, in a retail market that is undergoing significant change."

Warehouse, which this month bought the Schooltex school uniform brand for $9 million, signalled the downgrade at last November's annual meeting, blaming the first-quarter margin squeeze and the company's investment in new acquisitions and expanded online presence.

The retailer said it will provide full-year guidance when it announces the first-half result on March 7, and expects the improvements in the second quarter will continue to flow into the second six months of the financial year. The company has previously indicated annual adjusted profit will beat last year's $73.7 million.

The shares fell 1.1 percent to $3.72 in trading yesterday, and have gained 17 percent over the past year. The stock is rated an average 'hold' based on seven analyst recommendations compiled by Reuters, with a median price target of $3.75.