A 19 per cent drop in adjusted first-half profit at The Warehouse Group is disappointing but not unexpected, says chief executive Mark Powell.
The Warehouse has been operating in difficult trading conditions, Powell said, but was implementing strategies to deal with this, including focusing on refitting the stores.
"[When I first came on board] the stores were very tired so that investment catch-up has now happened," Powell said.
"We're entering a slightly different phase in the strategy where the focus becomes very clearly onto our customers, improving products and driving productivity."
Powell said the performance of the Red Sheds and Noel Leeming had impacted negatively on the result, with a late start to summer and the digital switchover affecting sales in both areas.
Salt Funds Management analyst Matthew Goodson said the result was "weak, as expected".
"They've invested in significant cap-ex on their stores which hasn't really delivered in terms of sale outcomes, and they've also purchased businesses like Noel Leeming and Torpedo 7 which certainly haven't delivered on the earnings front so I think the company does face some questions from here," Goodson said. "It's been a significant underperformer for some time."
Net profit after tax for the six months ended January 25 was $43.3 million, down from $58.7 million in the same period the previous year. Although when one-time items were excluded, the adjusted net profit was down 19 per cent at $37.2 million. Retail sales rose by 1.7 per cent to $1.44 billion.
The company reduced its forecast dividend payout to 16c from 19c for the full year, a move which Powell said had been given careful consideration.
"We had to weigh that up and we ideally didn't want to do that," he said. "When we did the capital raise, we said other than something happening that was unforseen we would want to do 19c.
"We have reduced it to 16, it's not a decision we took lightly but we have to prudently manage the business and the balance sheet and I think it was the wise thing to do."
Goodson said the drop in dividend could be concerning for shareholders.
"I think this is a signal of their balance sheet," he said. "It's not stressed yet but it's certainly not the fortress it once was and the dividend is a signal of that which could be an issue for some retail investors," he said.
"It's a signal of where the directors see the future earnings outlook and the financial strength of the company sitting."
Powell said the second half was likely to be stronger. The company has forecast full-year profit of between $52 million and $56 million.
"The pain of the first half will carry through and the full-year profit will therefore show a decline on the full-year the previous year," Powell said.
"The key thing is we've gone through a huge period of change and investment, not just in the Red Sheds but absorbing the businesses we've acquired. We now have a base, we've reshaped the group and we're going to make what we've got work."
Powell said one-off costs and events such as the digital switchover were unlikely to happen in the second half, but the trading environment was still highly competitive.
"Competition always has an impact, it's hard to gauge sometimes how much, but the big impacts were the cold and wet spring and the digital switchover, which was significant - it had a bigger impact than we'd expected," he said.
"There was a lot that happened, a lot of one-offs but we've now got to pick back up and drive on with the second half."
The company's shares closed down 12c at $2.79 yesterday.