The Warehouse Group just sold Torpedo7 for $1 after buying it for $55.2 million. While Kathmandu’s sales are struggling. Where to now for woeful retailers?
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Torpedo 7 went backwards under The Warehouse Group’s ownership, making total losses of $50 million in the past six years, and was unlikely to improve, analysts have revealed.
“Given the company’s poor track record and difficult operating backdrop, we had been forecasting continued operating losses over the short to mediumterm,” Jarden analysts Guy Hooper and Nick Yeo wrote in a note to clients the day after the sale of Torpedo 7 for $1 was announced.
Forsyth Barr analysts agreed, saying Torpedo 7 had had a chequered past.
“Initially making modest EBIT [earnings], before large losses prior to Covid and in the last two years,” Rohan Koreman-Smit and Paul Koraua wrote in a note to clients.
The outdoor gear business had been in Warehouse hands for 11 years after it purchased it in three increments between 2013 and 2016 for $52m. Torpedo 7 was founded in 2004 by Luke Howard-Willis.
Jarden analysts said it was loss-making for at least five of those years.
“The company also rolled up additional assets under the Torpedo 7 umbrella,” Hooper and Yeo wrote.
“Including the 2014 circa $26m purchase of Number 1 Fitness, Shotgun Supplements and R&R Sport, which was rebranded as Torpedo 7 and became the brand’s physical footprint.”
The Warehouse Group purchased Torpedo 7 in three increments, for a purchase price totalling $52 million. Photo / Dean Purcell
It kept expanding the store network from there and had 25 stores as of mid last year.
“But, the operating cost base continued to grow with limited evidence of operating leverage or improved store productivity.”
Ultimately selling it to Tahua Partners for $1 this week, and taking a $55m to $65m writedown on the business as a result, was seen as a positive step.
“Whilst writedowns are disappointing, overall we view this as a positive as we had forecast Torpedo7 to remain loss-making over the medium term,” Forsyth Barr’s analysts wrote.
It led them to upgrade their rating on the stock to neutral, from outperform previously.
Tahua Partners is a consortium whose shareholder directors include Paul and Liz Blackwell, former owners of Pak’nSave Albany, and Rob Redwood, the former owner of Glen Innes Pak’nSave.
Tahua Partners will take ownership of Torpedo 7′s assets, including stock, cash in store and the Torpedo 7 brand, and will assume its obligations, including in respect of leases and honouring gift cards, online orders, and customer returns.
Analysts have upgraded their rating on The Warehouse Group after it sold the loss-making Torpedo 7 business for $1. Photo / Tania Whyte
However, Torpedo 7 was not its only underperforming brand; it and Jarden analysts suggested online start-up The Market may need to be sold off next.
The Market made an earnings loss of $22m last financial year, putting it on par with Torpedo 7.
“[The Warehouse’s] strategy to refocus on its core businesses leaves us questioning how much longer The Market can continue to detract from group earnings,” Koreman-Smit and Koraua wrote.
“Exiting The Market would extinguish one of WHS’s limited growth options.”
The Warehouse launched online platform The Market in November 2019 with a subscription service called TheMarket Club. It offers shoppers free delivery for orders over $45, exclusive deals and discounts. Joining fees start from $5.99 a month up to $50 for 12 months.
The Warehouse launched online platform TheMarket in November 2019 with a subscription service called The
Market Club. It offers shoppers free delivery for orders over $45, exclusive deals and discounts. Joining fees start from $5.99 a month up to $50 for 12 months.
The subscription model was designed to emulate e-commerce giant Amazon and what it offers through its popular Amazon Prime membership. As well as selling products from The Warehouse and its other brands it also sells products from other retailers including Barkers, Trade Tested and Paypark by Jaren Walker.
Rival retailer Costco also has a subscription model with shoppers having to pay $60 a year for membership.
Jarden’s Guy Hooper and Nick Yeo kept an underweight rating on the stock and warned it could still lose more market share,
“The company has a long road to rebuild investor confidence,” they said.
Shares in The Warehouse opened on Friday at $1.32 and are down 47 per cent in the last year.
Madison Reidy is the host of the NZ Herald’s investment show Markets with Madison. She joined the Herald in 2022 after working in investment, and has covered business and economics for television and radio broadcasters.
