Sunday, March 8, 2009

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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Related Links

2009 Interim Profit Webcast
(Thursday March 12 from 9.15am, NZ Time)
Go shopping at The Warehouse

The Warehouse Financial Data

Related Amazon reading

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The Wal-Mart Effect: How the World's Most Powerful Company Really Works--and How It's Transforming the American Economy by Charles Fishman
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Kindle 2: Amazon's New Wireless Reading Device (Latest Generation)

c Share Investor 2009

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