Warehouse just can't stand the heat

The Red Shed is set to enter a new era next month with the opening of its first hypermarket. Picture / Hawke's Bay Today

The Warehouse blamed warm weather and patchy consumer demand for disappointing third-quarter sales, which yesterday triggered the largest fall in the discount retailer's share price in a year.

Sales in the three months to April 30 of $386.4 million were below the company's expectations and just $4.9 million or 1.3 per cent ahead of the same time last year.

That pushed sales for the financial year so far up 1.7 per cent to $1.318 billion.

At one point yesterday shares in The Warehouse fell 19 cents to $3.76, the biggest one-day decline since April 18, 2005, before recovering to close down 10c at $3.85.

The Warehouse said depressed sales of winter goods such as heaters and clothing hit its 85 mainstay "Red Shed" stores.

"We have not had a two-week period where the temperature has dropped into what we would normally associate with cold weather and winter temperatures across New Zealand," the company said.

Red Shed third-quarter sales fell $1 million or 0.3 per cent to $327 million on the same time last year.

On a same-store basis, sales were down 2.7 per cent for the quarter and 1.7 per cent for the year so far.

Although there were performance highlights within the quarter including the addition of Apple iPods to its range, those gains did not compensate for a slower start to winter merchandise sales, said chief executive Ian Morrice.

"Customer demand remains patchy, with economic indicators suggesting an uncertain consumer outlook for the balance of 2006."

Against this economic backdrop, the company expected sales performance to gradually improve in the final quarter.

It was sticking to its previous full-year earnings guidance of between $83 million and $88 million, after adjusting for the divestment of its Australian business - sold to two private equity firms last November.

That compares with 2005 earnings of $71.9 million before a one-off charge of $32.9 million.

Forsyth Barr analyst Guy Hallwright said although the stationary business looked to be improving, there was still no sign of a turnaround in the Red Sheds' sales decline.

"They do sound reasonably confident there will be some kind of pickup in sales in the fourth quarter, of course they will be struggling with increased petrol prices pushing down consumer spending."

The company's 43 Warehouse Stationary stores had a strong third quarter with sales rising 11 per cent at $59.4 million, bolstered by office furniture and technology sales.

Year-to-date sales of $159.5 million were 6.3 per cent ahead of last year's $149.6 million.

The Warehouse is set to enter a new era next month when it opens its first hypermarket or grocery and general store in the Sylvia Park shopping centre in Mt Wellington.

The 12,500sq m Warehouse Extra will combine a pharmacy, liquor store, full grocery store, cafe and bakery under one roof.

The concept could be rolled out at up to 15 stores and would bolster earnings as consumer demand slowed, Morrice said.

First, the company will open its first in-store pharmacy at its Te Rapa concept store in Hamilton.

That follows its foray into liquor with the launch of Warehouse Cellars last month within its Fraser Cove store in Tauranga.

UNSETTLED WEATHER

The Warehouse on its changing business climate:

* November 2004: Apparel, one of the key categories for Red Sheds, had a disappointing quarter. One key factor in that weakness was the cooler than usual start to spring.

* February 2003: Sales were affected by the poor December weather impacting categories such as summer and sporting merchandise.

* August 2003: Despite a warmer than usual winter, we have maintained good sales momentum and are comfortable with stock levels of winter merchandise.

* November 2003: While the wetter than usual September slowed sales in seasonal merchandise including apparel and footwear, these categories will perform better as the weather improves.