3 Sep 2012

Overhaul not expected to help The Warehouse yet

7:00 am on 3 September 2012

An overhaul last year by The Warehouse of its Red Sheds is not expected to help its bottom line when its results come out on Friday.

Underlying profit last year fell 9% to $76 million. The company announced then that it was implementing a three-year turn-around strategy designed to rejuvenate its stores, promotions and branding.

Morningstar Research senior equities analyst Nachi Moghe doesn't think the effect of these changes will be felt for some years.

He expects the result to be down compared with last year.

Mr Moghe says his profit forecast for the full year is about $66 million, which is at the higher end of management's guidance of $62 - $66 million.

He says last year The Warehouse full year profit was about $76m, so there will be a drop this year because of sluggish sales overall and increased discounting.

Mr Moghe says factors which have led to the narrowed margins for the company include more competition from regular and online retailers, as well as discounting in certain categories of products.

He says the results are in line with other companies in the retail sector, but there are some performing better than others.

Mr Moghe says Briscoes has been doing far better than The Warehouse because it has a better product mix and it's managed to entice consumers to its stores.

"Whereas The Warehouse over the last many years has underinvested in their stores and that's the reason why they have not been performing well, so it's all about reinvesting in stores and making the consumer want to shop in your store."

He says that's what the new Warehouse chief executive is trying to achieve with a $450 million investment programme over the next five years.

Mr Moghe says if The Warehouse is successful in doing that, then it will probably mean a future improvement in growth rates.