Warehouse shares fall after it reports 8pc fall in annual profit

Shares in The Warehouse fell 3 per cent today after the discount retailer reported its July year net profit fell 8 per cent to $75.4 million from $82.2 million a year earlier.

The stock fell 15 cents to $5.10 although the poor result from The Warehouse Australia had been well flagged.

"It looks like the market's a little disappointed with the result," broker James Lock from ABN Amro Craigs said.

The group's second-half profit fell 26 per cent because of a loss at its stores in Australia, where it competes with Coles Myer's K-Mart and Target discount chains.

Net income in the six months ended July 31 fell to $17.2 million from $23.1 million a year earlier.

Although the company said the Australian unit was on the mend after enacting a strategy dubbed "Project Urgency", chief financial officer Luke Bunt said it may take two-to-three years to turn around its 130 Australian stores, which cut prices to boost sales.

Mr Bunt said the company would continue to invest in Australia.

Company founder Stephen Tindall, who has stepped back into the managing director's role following a 2-1/2 year break after the sudden resignation of Greg Muir, said the main reason for the diminished profit was the poor trading results in Australia.

Annual sales at The Warehouse Australia rose 17.5 per cent to A$463.3 million ($527.6 million) and same store sales rose just 2.3 per cent but it incurred an operating loss of A$11.9 million compared with a year ago profit of A$2.2 million.

"Competition in Australia is massive - K-Mart and Target have stepped up the pressure," said John Norling of Alliance Capital Management.

"No-one expected otherwise" than a long turnaround time, he said.

Under Project Urgency The Warehouse Australia was being revamped with plans to open up to 16 large format stores before the end of July 2004 and close a similar number of smaller stores.

Improvements in supply chain management, product range, merchandising and marketing were being implemented, Mr Tindall said.

"Project Leapfrog', surrounding a new distribution facility in Queensland, has been deemed a success.

"Our merchandising and warehouse systems proven in New Zealand have also been implemented as part of this project. Together these two initiatives will be enormously beneficial to the business," Mr Tindall said.

He said The Warehouse Australia was a changed company from a year ago.

The group result was on total operating revenue of just over $2 billion, up 9.3 per cent on $1.86 billion a year earlier.

The pre-tax operating profit fell to $123.6 million from $127.2 million while earnings per share fell to 24.7 cents from 27.0 cents.

The Warehouse New Zealand saw sales rise 7.1 per cent to $1.35 billion and same stores grew 5.6 per cent but operating margins fell 25 basis points to 10.9 per cent.

The company declared an unchanged 4 cents per share final dividend compared. Total dividends for the year came to 14.5cps against 13.5cps in 2002.

The Warehouse Stationery sales rose 32 per cent to $164.5 million and same store sales growth was 18 per cent. Operating margins rose 2.3 percentage points to 5.7 per cent.

Mr Tindall said that following a weaker than anticipated Christmas the company undertook a major revamp of its promotions and marketing format.

"The expected improvement in sales has been achieved," he said and the "Red Sheds" were now performing.

"We are confident that the momentum will continue."

He described the Warehouse Stationery result as "fantastic".

The Warehouse shares have traded as low as $3.96 when Mr Muir resigned. They have dropped from $7.27 a year ago.

- NZPA