The Warehouse Group [NZX:WHS] is well-known to New Zealanders, with The Warehouse being their answer to Walmart [NYSE:WMT].

The low-cost retailer, ‘where everyone gets a bargain’, was founded by Stephen Tindall in 1982. It has gone on to consolidate into a group of focused retailers — consisting of The Warehouse, Warehouse Stationery, Noel Leeming, Torpedo7, and TheMarket.

Its total market capitalisation is around $800m. The company currently trades on a P/E of around 16.9, with previous projected dividend yields in the range of 5%+ p.a.


Why has the [NZX:WHS] share price risen?


The company today announced financial results for the full year ended 2 August 2020:

  • Group sales were $3.2bn, up 3.3% compared to FY19, and up 1.5% on a 52-week.
  • Reported Net Profit After Tax attributable to shareholders is $44.5m, down 32%
    on last year.
  • Reported profit less government wage subsidy showed a $4.3m loss.
  • Group online sales were up 55.2%.
  • For the lockdown period, there was a $265m (67%) sales reduction on the same time last year.
  • Adjusted Net Profit After Tax of $80.7m, up 9.0% on last year.
  • No dividend to be paid for FY20.


Where could [NZX:WHS] go from here?


Today’s price rise seems to be driven by the fact that sales were up, even accounting for the difficult Covid months from March. And the market seems to like this new online focus. The company noted strong growth in online and click-and-collect sales, with online now making up 11%.

Of course, the benefit with online is that you may be able to increase margins since you don’t need so much retail footprint. But while the market is hoping for this, my concern is that once you move into the online space, there are a plethora of competing options.

Part of the benefit that physical stores offer is that you can go in, see what you’re buying — and perhaps pick up another bargain or two on impulse.

For a cash-generative business, it is also disappointing to see the dividend suspended in FY20, and the overall plummet in Net Profit After Tax attributable to shareholders.

The Warehouse Group represents a relatively defensive set of retailers with proven management. But the future outlook could be tough, with increasing competition both at the brick-and-mortar and online levels. Competition from Kmart, potentially Costco, and a plethora of online e-tailers looks set to provide further headwinds as wallets tighten.



Simon Angelo


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