Today's announcement of profit (1MB PDF)at the big red sheds at The Warehouse Group [WHS] today had two significant pieces of information.
One, a good profit result-considering how other retailers like Briscoes Group [BGR] have fared recently- of $NZ90.769 million to full year July 27 2008 versus $114.834 million in 2007, a decrease of 21.0 % .
Sales were down on 2007 1.5% to $1.735 billion.
As I wrote in a column on Thursday, The Warehouse will do well in the long-term and today's announcement shows that in an extremely tough retailing environment the company has done better than most and weathered the recession well, so far anyway.
The second significant tidbit was the results of the trial of the 3 "extra" format stores:
"In relation to Warehouse Extra we have put considerable resource into refining the model and improving execution in both store operations and supply chain", Mr Morrice says. "As a result we have seen a measurable increase in customer acceptance and improved financial performance across our three Extra stores. Disappointingly however, the sales halo benefits that emerged in the first half did not maintain their momentum and have annualised well short of our expectations".
Mr Morrice said that the Extra strategy was under review. A decision regarding the future of the strategy would be made before the end of October.
Ian Morris, CEO
I'm very surprised that kiwis haven't embraced the giant "one stop" store format that has made Walmart so successful, however it appears that this style of shopping just wont fly here, or the company have the model wrong. This puts the decision made in the Appeal Court earlier this year, in The Commerce Commissions favour against Foodstuffs and Woolworths Australia buying The Warehouse, in jeopardy when it goes before The Supreme Court, probably sometime in 2009.
The Commission's case was apparently won on the basis of "potential competition" in the grocery market that the extra format stores "might provide in the future" and therefore a possible buyout of the company was nixed.
A decision to cut the format loose by The Warehouse in October would clearly remove that "potential competition" stumbling block from a Woolworths appeal to the Supreme Court and clear the way for a gobble up of the big red Kiwi retailing icon.
Short term investors should place their bets soon while the share price is low and long term investors should be hoping that there is a bidding war between the two possible suitors so their pockets are sufficiently full come bargaining time.
Either way the October decision will be eagerly awaited.
Disclosure: I own WHS shares
The Warehouse @ Share Investor
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Related Links
Warehouse results
Audited Results for the financial year ended 27 July 2008.pdf (1MB)
Warehouse Corporate profile
2008 Interim Report
Shareinvestorforum.com -Discuss this company
Related Amazon reading
Harvard Business Review on Retailing and Merchandising (Harvard Business Review Paperback) by Hbsp
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c Share Investor 2008
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