Release Date: March 19, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Warehouse Group Ltd (The) (NZSE:WHS, Financial) reported a 160 basis points improvement in group gross profit margin for the half year.
- The company achieved an 18.9% increase in continuing adjusted net profit after tax, reaching $30.7 million.
- Net debt significantly reduced to $18.7 million from $83.4 million the previous year.
- The Board declared an FY '24 interim dividend of $0.05 per share.
- The company appointed Tony Carter as an independent director, bringing extensive retail and governance experience.
Negative Points
- The group reported a net loss after tax of $23.7 million, largely due to a $60.1 million impairment from the sale of Torpedo7.
- Sales were down 4.9% to $1.6 billion compared to the first half of FY '23.
- The Warehouse sales decreased by 4.7%, Warehouse Stationery sales fell by 5%, and Noel Leeming sales dropped by 2.2%.
- The economic environment, including inflation and higher interest rates, negatively impacted consumer spending and sales.
- The company announced the intention to close or sell TheMarket.com due to its inability to achieve sustainable growth.
Q & A Highlights
Q: Can you provide any color around what drove the significant decline in February and touch on recent consumer trends?
A: Nicholas Grayston, Group CEO: January and February were tough due to customers being stretched from Christmas expenses and credit card bills. Market data showed declines in apparel and home furniture. However, as the weather turned colder in March, we saw some improvement with new season products.
Q: How do you think you're losing market share, and what is your strategy against competitors like Temu?
A: Nicholas Grayston, Group CEO: Market share has been under pressure, particularly in online sales. We pulled back on heavily promotional online sales to improve profitability. Competitors like Temu have different standards; we focus on ethical sourcing and product quality. Our strategy is to differentiate as a key retailer with a strong store footprint and value proposition.
Q: How do you expect the cost of doing business (CODB) to track into the second half, and are there any other levers to reduce costs?
A: Nicholas Grayston, Group CEO: CODB was down $8 million in the first half, mainly due to employee expense reductions. However, opportunities for further reductions are limited. We are looking at efficiencies in labor scheduling and distribution, but inflationary pressures remain a challenge.
Q: How are you addressing the underperformance in core categories like home and apparel?
A: Nicholas Grayston, Group CEO: We are reconstituting our core customer value proposition and building entry price points with full margin at better pricing. We are also adding more interest and inspiration to our products, with new hires from J.Crew and Kmart to lead these efforts.
Q: Is there an opportunity to reduce the total store footprint and increase stores within a store to reduce rent expenses?
A: Nicholas Grayston, Group CEO: While there will always be churn in store footprint, we don't see a material closure of stores. We will continue to drive efficiency and explore more store-within-a-store concepts, which have worked well and increased traffic.
Q: How do you see the strategic shape of the group going forward, especially after recent divestitures?
A: Joan Withers, Independent Non-Executive Director: Our focus is on simplifying, prioritizing, and driving execution of the core business. While we won't rule out future opportunities, any potential acquisitions will undergo rigorous evaluation to ensure they align with our strategic goals.
Q: How is grocery performing, and what is its long-term potential within The Warehouse?
A: Nicholas Grayston, Group CEO: Grocery has been performing well, now making up 20% of The Warehouse sales. We don't see it growing significantly beyond this percentage. Our focus is on making grocery more profitable through better distribution and increased private label offerings.
Q: What are the financial impacts of the Torpedo7 sale and how is it accounted for?
A: Celia Mearns, Interim CFO: The sale of Torpedo7 resulted in a $60.1 million noncash pretax impairment. Combined with operating losses, the net loss from discontinuing operations was $55.5 million. The sale is expected to be completed by the end of March, with final adjustments to be accounted for in H2.
Q: How are you managing the balance sheet and liquidity, especially with recent challenges?
A: Celia Mearns, Interim CFO: We have significantly reduced net debt from $83.4 million to $18.7 million through improved trading terms and careful working capital management. Liquidity stands at $471.3 million, and we remain prudent with our balance sheet to navigate through current challenges.
Q: What is your outlook for the second half of the year given the current retail environment?
A: Nicholas Grayston, Group CEO: We expect tough retail market conditions to continue, with subdued customer spending. While we won't provide a full-year outlook, we will share a Q3 trading update in May 2024. Our focus remains on strengthening core brands, delivering better products, and managing costs.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
