9 May 2014

Analysts query Red Shed's prospects

6:50 am on 9 May 2014

Some analysts are questioning whether The Warehouse Group will be able to improve its margins and bottom line.

The retailer, which is in its third year of a five-year turnaround plan, reported an 8 percent rise in group sales to $604 millions in the three months to 27 April, compared to the same period last year.

Sales at Warehouse stores, which account for half its business, increased more than 3 percent to $357 million in the three months to 27 April.

Group chief executive Mark Powell said there had been strong growth across a range of categories, including apparel.

"Apparel has grown on last year. However, the season is still very warm and, obviously, we'd hoped to get a bit of cold coming through (so) that is a bit of a concern there."

Gross margins had also improved slightly, he said.

Meanwhile, Warehouse Stationery sales rose 8 percent to $68 million, while Noel Leeming's sales jumped more than 10 percent to $147 million.

The recent acquisitions of R&R Sport and Number 1 Fitness have also helped to quadruple sales at the group's online sports offering, Torpedo 7, to nearly $23 million.

The retailer is three quarters of the way through a $100 million-plus refurbishment of its Warehouse and Warehouse Stationery stores.

An analyst at Craigs Investment Partners, Chris Byrne, questioned whether it would be able to turn that investment into bottom line profits.

Mr Byrne gave the stock a buy recommendation, though he believed Noel Leeming's double-digit sales growth is unsustainable and is likely to soften in the future.

Forsyth Barr has given the stock an underperform rating, saying the Red Sheds' performance is disappointing.

An analyst at Milford Asset Management, Victoria Harris, agreed, but she was confident chief executive Mark Powell would deliver.

Warehouse shares remained unchanged at $3.38 on Thursday.