The Warehouse Group Limited has released its 2018 interim results. The group is placing inner structural changes to its business as the reason for a less than ideal performance.
The first half year for the group saw the start of a large transformation, which included the operational integration of Warehouse Stationery (Blue) with The Warehouse (Red), and Torpedo7 with Noel Leeming.
The integration of the businesses has been named as the reason both retail sales and retail operating profit saw a decline.
The intern report states that although retail sales were down 0.9 percent due to declines in Red driven by a change in pricing strategy, those were offset by a strong growth in Torpedo7 and Noel Leeming sales.
Retail sales for the whole group were down 0.9 percent, while retail operating profit was down 16.5 percent. The biggest decline came in the form of operating cash flow, down 40.6 percent.
The groups net operating profit after tax was originally reported at a loss of 15.1 percent, but was adjusted to 16.4 percent due to adjust for the classification of the sold financial services business as a discontinued operation.
The company’s net debt saw an improvement, thanks in part to the $94 million sale of the Newmarket location. The sale now sees the groups debt sitting at $169.2 million, compared to $263.3 million the year before.
Operating cash flow was by far the groups biggest hit, down $31.9 million from the year before.
The red sheds saw same store sales decrease by 3.7 percent, which according to the report was anticipated effect from the transition to their ‘every-day-low-price’ strategy.
Gross profit was down only slightly at 4.4 percent, or $15.5 million, due to the group investing in price as part of its transition to EDLP and completed clearance of discontinued ranges.
The group is expecting to see further reduction in the cost of doing business (CODB) as it continues to simplify its operating model.
The Warehouse Stationery
The Warehouse Stationery is currently being restructured to become part of the larger red sheds. This integration complexity has been placed as the reason for the decline in performance.
Same store sales were down 7.9 percent, gross profit was down 5.9 percent, and operating profit was down 43.4 percent.
The report says that although the number of transactions are similar to last year, average sale price saw a decrease.
Noel Leeming continues to be the golden child for the group, seeing an operating profit growth of 66 percent.
Strong sales results in the first half resulted in a sales growth of 7.5 percent. Key growth came from the cellular and audio categories. The 15.3 percent rise in growth profit was as a result of the increase in sales volumes and an improved GP percent of 150bps driven by category mix and promotional activity.
Two new stores were also opened for the Noel Leeming Group, being Royal Oak, Auckland and Rolleston, Christchurch. In addition, it also relocated its Northwood, Christchurch site and extended its Taupo store.
The sports focused arm of the group saw mixed results. Torpedo7 Group sales grew 2.5 percent with strong growth coming from the retail stores.
Same store sales from its physical stores was up 12.2 percent. Sales were up 2.5 percent, yet operating profit was down 68 percent. Torpedo7 New Zealand has been operating at a profit, while the Australian side saw a decline.
Gross profit didn’t move, reporting $21 million for both 2017 and 2016.
The group continues to see retail conditions as favourable, despite increase in competition. It expects the second quarter to see a higher performance as peak trading period for the business comes around.
The all-round mixed results for the business can be attributed to the internal restructure of the blue and red sheds. To make the transition smoother, the group has appointed a new chief transformation officer to drive the programme of work, Scott Newton, who has relevant NZ based transformation project experience.
The group are expecting more incremental costs as the transformation progress continues into 2019.