Warehouse 2009 Interim Profit a key economic indicator

The Warehouse Group [WHS.NZ] will release perhaps their most anticipated profit announcement, at 8.30am this coming Thursday 12 March ( Webcast here from 9.15am NZ Time).

Highly anticipated because of previous retailers poor results released over the last month or so.

The Warehouse is the largest non-grocery retailer in New Zealand and its result will be looked at as an indicator of where retailing and perhaps the economy as a whole is doing and might be heading.

The Warehouse is a company that has had its ups and downs over the years.

A badly executed expansion into Australia in 2000 lost several hundred million dollars of shareholder money and put management's eye off the ball in New Zealand.

An abandoned foray into grocery retailing through the company's "extra format" stores also went astray-a good idea but not enough time given to get it right in my humble opinion.

This haste to abandon grocery sales was precipitated by a move by Foodstuffs and Woolworths Australia [WOW.ASX] making bids for the company in late 2007 and the extra grocery stores stood in the way of a successful sale.

The Commerce Commission has thus far blocked any successful bid but it looks unlikely that one will eventuate anyway considering the current economic climate.

As a result of all this background noise profits suffered for a few years because the company lacked a clear cohesive direction.

Well, Ian Morrice, Warehouse CEO, a canny penny pinching Scot has resurrected the "red sheds" and got it back to its core competency-selling stuff cheaper than anyone else.

Meanwhile back to the profit result.

In past years the company has done well during the good years and better during the bad times, simply because its goods were cheaper than anyone else's.

Things have changed slightly since the good old days in that The Warehouse' competition has been more competitive price wise but evidence in the United States from the Warehouse' mentor Wal-mart is that they have had spectacular results released in February with profit up by 4% over the last quarter, this during a massive economic downturn that has sent many of Wal-marts competitors to the wall.

Chief Executive Lee Scott explains their strategy for its good quarter:

“The price leadership strategy we put in place at the beginning of the year was exactly the right strategy for our customers around the world in a tough economic environment.

We knew our customers would be stretched during the holidays and we made sure they knew that they could count on Wal-Mart for low prices.

Customers were more cautious in their spending in January. In a volatile economy, I believe we are well positioned to succeed.”

The Warehouse has been focusing on lower prices over the last 6 months and a move towards more brands and a better and more funky clothing range has been a success during 2008.

I expect net profit for The Warehouse Group for the first half of the financial year ending 25 January 2009, to be slightly better than the $56.8 million(similar to last year) indicated by the company in early January. The company has indicated that there will be costs associated with exiting the extra stores, Warehouse Cellars and loses due to electricity derivative contracts.

Given the Warehouse retail competition is being battered by drops of 30% or more in profit the indicated result for the last six months is something to be thankful for, especially if you are a Warehouse Shareholder.

I happily am.


The Warehouse Group @ Share Investor

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WHS Court of Appeal case could be dismissed next week
Commerce Commission impacts on the Warehouse bottom line
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The fight for control begins soon

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2009 Interim Profit Webcast (Thursday March 12 from 9.15am, NZ Time)
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Hidden Agendas

There were plenty of accusations of "secret agendas" from the Labour Party centred at the National Party before they were devastated at the 2008 general election (Political Animal was one of few who picked a landslide well before the election) but after more than 3 months of National at the helm the only secret agendas now being revealed are those that Labour kept from its supporters and New Zealand voters.

Billions of dollars of bribes were promised by Labour to buy the 2008 election but the thing is very few of them were actually funded.

There were shortfalls in their student loan re-gig, the insulation of homes, health, police, roading and the grandaddy of them all the 2 billion plus hole in the ACC accounts.

While at the same time promising to extend and upgrade ACC cover and keep premiums low Labour were aware of these shortfalls but kept promising anyway-it was one of their main election planks.

Not only that, Michael Cullen and ACC Minister Maryan Street were obliged to let New Zealanders and the incoming Government know about the shortfall under financial disclosure law-law was something they had little disregard for in their 9 year reign of terror so that is no surprise.

So Labour lied to the people, covered up vital financial information they were obliged to report and went into the election under false pretences.

They should be at least ashamed and apologetic but instead they continue their arrogant, petty, two faced high handed ways that lost them the election.

Hon PHIL HEATLEY: ...Interestingly, the same Minister who fiddled the books in State housing fiddled the books at the Accident Compensation Corporation.

Hon Maryan Street: I raise a point of order, Mr Speaker. I consider that reference to be unparliamentary. I take offence to it and I ask that you ask that member to withdraw and apologise. Parliamentary debate March 5 2008

She did fiddle the books but all she cares about is a non-existent reputation.

The whole saga reminds one of that old chestnut that goes something like this, those that point their fingers in accusation are often the ones who have something to hide.

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What is a Depression?

There has been talk of recessions, deep recessions and depressions and I am confused. I think I have my head around a recession but what the hell is a depression?

You would have to be blind, deaf plain stupid or just Al Gore if you didn't know about the current global recession.

So read on and let me explain how I see things

Some commentators are saying recession, some deep recession and some the dreaded "D" word, depression.

A recession is technically 2 quarters of negative economic GDP growth with various other determinants depending on what school of economics you when to.

A deep recession is a prolonged deeper felt recession.

But what is a depression?

Well, those of us old enough to know about economic depressions know about them from their knowledge of the Great Depression. Briefly, in case you didn't, the Great Depression kicked off on October 24, 1929, or “Black Thursday” when U.S. stock prices fell 15 - 20%, causing a stock market crash. The following depression was a worldwide economic collapse that lasted approximately 10 years and led to massive unemployment in the U.S. of 25% at its peak in 1933 and those that were in work having their incomes drop by 40%. GDP halved and world trade dropped 65% ! Similar events occurred world-wide.



We have all seen the images of long lines of people queuing at soup kitchens for food, rushing their banks to get their money out and vast tracts of empty business.

Assets were worth what you could get for them depending on your need to sell.

We are also aware of the bailouts by the Roosevelt Government and the subsequent failure of those measures as they prolonged the downturn.

People were in despair.

The globe only recovered because of WW2.

A depression though seems technically harder to define than a recession but many economists think that a 10% GDP drop in one year indicates one but others would define it by the number of quarters there was double digit unemployment.

Many economists would say that a depression is merely a "prolonged recession" and from the reading I have done I think that this description best suits.

The impetus for the current global recession was the U.S. housing bubble finally bursting and that took the banks down, then weak businesses, then the US stockmarket dropped by nearly half and unemployment looks set to top 10% when figures are released tomorrow.

Global trade has been hit badly in January dropping by around 40%.

Assets of all kinds are not selling for their true worth.

This has also reverberated around the globe.

I don't know whether we are currently in the middle of a deep recession or some kind of depression but one would have to consider the amount of fear and angst there was during the Great Depression and what is happening now.



89 year old Victor Zarnowitz has an interesting take:

Victor Zarnowitz also doesn't think we're there yet. He ought to know. The 89-year-old is one of six NBER board members that date U.S. business cycles. Besides being one of the world's leading economists, Zarnowitz was also a young man himself during the Depression of the 1930s. "It's too close, and the information is too incomplete to be sure we are in a depression and not a severe recession," he said. "Unemployment is much lower than it was at the peak. It was much worse than what I see today." Forbes.com

Personally I have not been affected badly yet.

It is really hard to know in the middle of all this what is really happening and we will always know more looking back but what is clear is that the recession we are experiencing now is nowhere near as bad as the Great Depression.

What is also very clear is that we have not seen the worst yet.

Roll on 2018 or boom 2011?


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Mainfreight vs KiwiRail: The sequel

The KiwiRail rort of Mainfreight Ltd [MFT.NZ] continues to roll on.

The trucking arm of Toll Rail (as it was known before its current name) was kept by Toll Holdings, an Australian logistics operator.

It was the only profitable part of the business.

It is still being subsidised by KiwiRail(the taxpayer) to compete against efficient truckers like Mainfreight.

The subsidy was due to expire 3 months ago but continues to this day.

KiwiRail is giving discounted freight prices and rentals for storage space at transport hubs so that Toll Trucking has a major competitive advantage over its rivals.

KiwiRail still rolls hopelessly on losing millions weekly, just so it can undercut private business.

I indicted back in May 2008 that this little scenario would cost Mainfreight dearly:

Long haul operators like Mainfreight are going to face intense competition from the new State run rail company. Subsidies to business who need goods hauled will give an unfair advantage to the rail operator when competing for business. Further government "protection" of a State rail system, in the form of "climate change" regulations and/or taxes can't be discounted with the current administration, who have shown that they are prepared to retrospectively pass laws to fit their socialist agenda, regardless of sensible business practices and outcomes. While Mainfreight have both long and short haul divisions and operate trucks from seaports, airports and rail hubs and therefore may be able to transform their long haul business and capital expenditure to focus on a possible busier short haul business-Labour have a goal of doubling current freight volumes, the cost to do this is clear. It will be large.

It looks like Mainfreight's managing director Don Braid has finally taken off the gloves because on Morning Report on Wednesday March 4 (1.5 MB mp3) he has applied pressure on the current National Government to do something about this anomaly. This is an unusual thing to do for Mainfreight management to take the media limelight, so they are clearly serious.

It is unclear how much of a discount Toll Trucking is getting but it is clearer than it was back in May that Mainfreight is losing out.

Customers and millions are being lost by Mainfreight. Other independent truckers have been forced out of business by these protectionist business practices and this is especially poignant given the dire economic climate.

Mainfreight shareholders might like to apply pressure by calling their local MP to give them the right message.

It is costing you as well.

Disclosure: I own Mainfreight shares

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