Warehouse upbeat on profit dip

Red Sheds chief says cash flow rise 'quite an achievement' in difficult market

The Warehouse Group chief executive Ian Morrice says the company's operating cash flows are "quite an achievement" in the current trading environment.

The retailer yesterday reported a 23 per cent drop in net profit to $49 million for the six months to January 25.

However, the result was impacted by the $10.6 million cost to the chain of exiting its fresh food Warehouse Extra business and its Cellars bottlestore operation.

Morrice said that was a non-cash writedown and adjusted for that, net profit was actually level with the same time last year. Operating cash flows were up more than 50 per cent, which had allowed the company to maintain its dividend of 15.5c.

The Red Sheds' sales were down 2 per cent, but compared with the marketplace that was strong.

"I think the business community is going to look at our results and see that in the current challenging conditions, our sales have held up well."

Its Warehouse Stationery chain fared worse, seeing a fall in same store sales of 7.6 per cent. The whole office products sector had been affected by the economic downturn, Morrice said.

The company had taken further action to reduce costs which would flow through to the second half of the financial year, and it was focused on improving its top line performance in the sector.

The Warehouse remained committed to its strategy of expanding its network of stores from 85 to 100 within five years.

It had identified areas where it would like to place stores and was looking for property. "We're pleased with the recent [proposed] amendments to the RMA which will indeed probably speed up that process," Morrice said. It also continued to expand its chain of pharmacies. So far it had seven, including one opened in Blenheim, during the period.

"It's important that we research where we put pharmacies in quite carefully and that we plan it accordingly."

Morrice said the company believed it was well placed to continue reducing prices for customers. "That's our main focus, to make sure that our competitiveness ... increases over the next six months, and do what we can to improve our market position."

Deutsche Bank analyst Kristan Walker said at an operating level the result was better than expected.

The Warehouse's balance sheet was in a good position and the company had headroom.

However, operating cash flow had been helped by the timing of creditors paying their bills which probably wouldn't be as favourable next time around.

The decision to exit Warehouse Extra was seen as positive and a sign of the company sticking to what it knows best.

"At the end of the day it's a business which has been founded on general merchandise and apparel and the like, and it's something they know well."

But the retailer was facing a tough environment and Deutsche Bank expected conditions to remain subdued into 2010.

"Internally, we are seeing some early positive signs, the business is refocused. But on the overall macro view, we still are quite cautious."

Warehouse shares yesterday closed down 7c at $3.45.