Friday, March 12, 2010

The Warehouse Group: 2010 Interim Profit Review

A flat as a pancake result for The Warehouse Group Ltd [WHS.NZ] was expected. The interim 2010 profit for the six months ended 31 January 2010 revealed this morning has left results competition from rivals like Briscoe Group [BGR.NZ] Hallenstein Glasson [HLG.NZ] and Pumpkin Patch Ltd [PPL.NZ] looking much better by comparison.

Profit was flat on flat revenue figures - $NZ57.4 million and just under $920 million respectively. Reasonable in these tough economic conditions but nothing there to indicate increased numbers are coming any time soon.

The most important point I think of the result is that the company managed to maintain margins in a retail environment of seemingly perpetual sales. Management have however indicated that margins may come under pressure because of buyers going crazy(my use of words) expecting increased sales that didn't eventuate and now having to dump stock. The retailers that I mentioned above all cut their inventories anticipating less of a rebound from the recession than The Warehouse clearly did.

The company is expecting a full year 2010 result out in September similar to the 2009 full year of $76.7 million, so expect the flat results to continue for some time is the message here.

The dividend, at 17c per share, is up from the usual 15.5c . It should have been used instead to repay increased debt in my humble and not so humble opinion.

Speaking of increased debt, management have indicated in a 2010 strategy update that they intend to increase the footprint of the company over the next several years so that means more debt added to the $80 million odd that is already on the balance sheet. A bond offer of around $100 million opens on March 24 presumably to exact this expansion and retire some of the debt already on the books.

As indicated above I would have liked to have seen a pay-down of current debt by cutting the dividend. I would also like to see consolidation of the company in the retail market and an improvement in margins before additional expansion is executed.

The result overall is unexciting and that cant be all bad in the current economy. Unexciting is good sometimes.

What I am excited about (and not in a good pre - Christmas I am a 5 year old waiting to unwrap my presents way) is the fact that additional debt is going to be added at a time of economic uncertainty, especially in the retail sector and that is not a good present for shareholders in the short to medium term.

6 out of ten.

Disclosure: I own WHS shares in the Share Investor Portfolio.



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2010 Interim Results Documents
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2010 Strategy
AUDIO: Warehouse Group 2010 Profit Presentation & Questions

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