Yellow tint weakens Red Sheds

By IRENE CHAPPLE and NZPA

The Warehouse Group shares took a dramatic dive yesterday after investors seeking reassurance on the company's Australian arm were told it was still struggling.

An initial drop of more than 5 per cent was tempered by the end of the day and shares closed on $5.30, a drop of 21c or 3.8 per cent.

At the company's annual general meeting chairman Keith Smith told shareholders there were still problems with Australia's so-called Yellow Sheds.

"The Australian operation for the first three months of the financial year is trading well below our expectation, as evidenced in the modest same-store sales increase of 1.1 per cent in the first quarter."

Smith said the Australian operations were unlikely to improve on last year's $13.4 million operating loss.

Founder and acting chief executive Stephen Tindall said the Yellow Sheds strategy remained unchanged and was still focused on improving the stock.

He believed changes in staff, including the employment of experienced retailer Ian Tsicalas as Australian chief executive, could alleviate the problems.

In response to a shareholder's question, Tindall said he hoped Australian sales would rise by 50 per cent over the next two or three years.

He later emphasised to the Business Herald the huge workload the Australian arm of The Warehouse had taken on over the past year.

The Warehouse entered Australia through the purchase of the Silly Sollys and Clint's Crazy Bargains chains in 2000 and had rebranded most of the stores. It had implemented a new financial system, opened 22 stores, closed 12 and opened a new distribution centre.

Tindall said in hindsight the workload should possibly have been undertaken over a longer time period.

But, despite shareholders at the meeting prefacing many of the questions with a congratulations on the company's achievements, the market was not sympathetic.

Direct Broking equities manager Brett Wilkinson said: "The question that must be weighing on investors' minds now is when will the turnaround occur.

"As another year goes by it puts further doubt on the Australian acquisition ... stocks only have a certain number of times they can announce bad news before they lose their premium sharemarket rating."

Smith said The Warehouse could not give a full-year earnings guide until after the vital Christmas quarter but that conditions in New Zealand and Australia remained supportive for retail sales.