Warehouse says it expects 8pc profit fall

Warehouse chief executive Mark Powell. The cost of a major refit and focus on improving shoppers experience will hit profits by 8 per cent in the year to July 2012. Photo / Paul Estcourt.

Warehouse Group, the biggest retailer on the NZX 50 Index, expects adjusted annual net profit to fall about 8 per cent, reflecting the shorter-term impact of the company's strategic plan and reinvestment program, chairman Graham Evans told the annual shareholders' meeting.

Adjusted for one-off items, net profit for the year ending July 31 is expected to be "in the order of $70 million" compared with the adjusted $76 million the company reported the year ended July 31 this year which was down from $83.4 million in 2010.

Evans, who took over as chairman from Keith Smith in May, said 2012 reported net profit, including surpluses expected from the sale of non-strategic property, will be "in the order of $80 million."

He expects consumer spending in the non-food sector will continue improving over the next 12 months but the extent of any underlying growth remains uncertain.

"Earnings are significantly influenced by trading performance over the critical January quarter with guidance usually only provided post Christmas trading," he said.

"Subject to any event or material change in trading conditions that may trigger a continuous disclosure obligation, earnings guidance will be updated at the time of the half-year result announcement in March 2012."

Chief executive Mark Powell took over the top role from Ian Morrice on the same day Evans assumed the chair.

Evans said Warehouse had failed to grow top line sales and market share in the past two years.

"Whilst the economy and competition have made our life more difficult, we have also failed ourselves in the standard of our retail outlets and the quality of our shopping experience," he said.

"In fact, we haven't measured up to what is expected of a well-operated discount department store."

Under Powell's leadership, the retailer is focused on improving its customers' shopping experience and investing in the 89-store Warehouse chain.

"We believe this will deliver top line sales growth which will in turn improve our profitability and returns to shareholders," Evans said.

The board intends to continuing paying 90 per cent of adjusted net profit out in dividends, he said.

Powell said the company plans significant capital investment of about $450 million in modernising and refitting stores over the next three to five years.

It is aiming to triple online sales over the next five years and to increase Warehouse store numbers to 93 stores by 2016 and Warehouse Stationery store numbers from 51 to 60.

Non-strategic assets worth between $75 million and $100 million will be sold over the five years.

Warehouse shares are unchanged at $3.20. They have been mostly trending lower from $3.84 in December last year but are off their recent $3.11 low.