The Warehouse reports record first-half profit; resumes dividends

The Warehouse reports record first-half profit; resumes dividends

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The Warehouse Group reported a bumper first-half profit with record results across its brands.

Maarten Holl/Stuff

The Warehouse Group reported a bumper first-half profit with record results across its brands.

The Warehouse Group’s first-half profit surged 89 per cent as The Warehouse, Noel Leeming, Warehouse Stationery and Torpedo7 all reported record operating profits.

Profit jumped to $55 million in the six months to the end of January, from $29.2m last year. The profit included the repayment of its $67.6m Government wage subsidy in December and an $11.3m charge for restructuring.

The company’s shares were the biggest gainer on the NZX in mid-morning trading on Thursday, up 5.5 per cent to $3.85, their highest level in more than seven years.

“It looks a very good result,” said Grant Williamson, an investment adviser at Hamilton Hindin Greene. “It’s been a pretty impressive recovery from the days of lockdown a year ago.”

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The Warehouse and other retailers have benefited from increased spending during the Covid-19 pandemic as money normally channelled to overseas travel was instead spent locally, improving home environments, upgrading electronics, and investing in outdoor equipment.

The pandemic came at a time of major restructuring for The Warehouse, as it closed stores, cut jobs and reshuffled rosters to respond to changes in shopping behaviour. Improvements in buying and pricing reduced inventory and clearance sales, helping lift gross profit margin by 260 basis points to 36.2 per cent.

While the company had benefited from some “buoyancy” in the market, chief executive Nick Grayston said improvements in the way it operated would continue to boost profitability in the future.

“We believe that our performance is sustainable,” he said.

Group sales rose 7.4 per cent to $1.8 billion, which Grayston said was driven by “exceptional growth” in electronics chain Noel Leeming, up 16 per cent, and sporting goods retailer Torpedo7, up 29 per cent.

Like many other retailers, the group’s online sales surged during the pandemic, up 50 per cent in the first half. They now account for 11.9 per cent of sales, compared with 7.9 per cent last year.

The company is flush with cash, ending the first-half with net cash of $183.6m, a turnaround from last year when it ended the half with net debt of $68.6m.

Grayston said that while the company had the capability to make acquisitions, any purchase would have to add to earnings or be strategically important.

While the company was always looking at opportunities, there was nothing to talk about right now, he said. He noted the company was able to offer customers more choice through partnerships, like its online shop The Market, without having to buy a new business.

The Warehouse will pay a first-half dividend of 13 cents on April 22. It cancelled its 10 cent interim dividend last year due to uncertainty around Covid-19, and also didn’t pay a final dividend for the 2020 year. However it did announce a special dividend of 5 cents a share in February, paid on March 4, after buoyant trading over November and December.

Chairwoman Joan Withers said the return of dividends reflected strong Christmas trading and a continuation of elevated consumer spending in retail combined with the benefits of operational savings from its restructuring.

Due to continued uncertainty in the trading environment the board wouldn’t provide guidance for the full-year, she said.

Sales for the first seven weeks of the second half are relatively flat compared with last year, when there was a spike in sales amid Covid-19 uncertainly as the country faced impending lockdowns. Compared with the more normal period in 2019, which wasn’t affected by Covid-19, sales were up 9.7 per cent, she said.

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