Major retail chain The Warehouse Group is warning that a slowdown in consumer spending is likely in coming months - despite the fact it has been enjoying very strong trading since the lockdown ended.
And it is warning of the likely need for asset writedowns, while it is still not yet prepared to offer any profit guidance for the financial year that ends this month.
Additionally the company says its lenders have agreed to a waiver on some of the banking covenants for much of the 2021 financial year.
In an update sent to NZX on Thursday the company said that while post lockdown, a lift in consumer spending has been observed, "the underlying economic impacts of Covid-19 are yet to be fully reflected in consumer spending".
"Economic forecasts and the group’s customer survey results indicate that a slowdown in consumer spending is highly likely as the conclusion of the wage subsidy scheme further increases unemployment, and discretionary spending is impacted by mortgage deferral schemes rolling off later this year," the company said.
It said while trading had progressively weakened from the levels initially observed post-lockdown, it remains significantly elevated relative to last year.
The company gave the following breakdown both for the latest quarter to date (QTD) and the year to date (YTD):
"Online demand increased significantly during Covid alert Levels 4 and 3 and has continued to be strong since stores reopened. Year to date online sales are up 54.8%, representing 11.8% of all Group sales versus 7.8% for the full year FY19," the company said.
It said there appeared to have been a "step change" in online sales following the surge during lockdown with online sales as percentage of Group sales being 9.3% since the first full week of re-opening, which was the week beginning May 18.
This indicated that customers "are increasingly moving toward online shopping options".
"However, fulfilment costs involved in servicing online sales means that the profitability of this channel is currently less than that achieved through our in-store transactions. These costs were further amplified given the rapid escalation to unprecedented levels of online sales through Level 3 and 4."
A benefit of the current strength of trading was that the group had further bolstered its liquidity position and was prepared for adverse trading conditions, the company said.
"The NZX listed bond of $125 million was repaid on June 15 and the Group retains undrawn bank facilities of $330 million. The Group’s banks have granted a waiver on its interest coverage covenant for Q2, Q3 and Q4 of FY21, if required."
The Warehouse Group previously withdrew its profit guidance for the financial year to the end of July 2020.
It said on Thursday that adjusted net profit after tax (NPAT) would be subject to the year end audit process.
"...There is an expectation that this could include impairment and provisioning against assets as a consequence of ongoing economic impacts created by Covid-19. The Board therefore reaffirms its position on withholding guidance on FY20 adjusted NPAT."
18 Comments
I hate shopping, I find it a most tedious waste of my time. I will always choose to buy online if possible, I've saved many hours of my life from being spent parking and wandering around. The only time I physically walk into a shop is if i need something more quickly than the online delivery will arrive. Which probably only happens once or twice a month and then the thing is usually wine ;-)
This is very important as The Warehouse is one of the only 'discount' retailers in NZ. The whole of the Western world (and Japan) are relatively well prepared for the decreased consumer spending with the emergence of discounters in the retail profile of their respective markets. Comparatively, NZ has nothing. And Australia is not that much better (fortunately Aldi is now in the shopper consideration set over there).
This is something I have been dreading for some time as NZ is poorly prepared for anything but economic bubble conditions. Take for example the supermarket assortments. These are among the most extensive in the Western world, even though our population is relatively small. The assortment is perfect for 'nice to have' trading-up FMCG products with limited store brand options and a poor price-to-value proposition. There are many producers of those higher priced products in the domestic market who're unlikely to survive. This means more bankruptcies, lower incomes, and layoffs for those connected to thouse businesses.
At the end of the day, this is all a result of the bubble. The idea that a rainy day could come along was never seriously considered or believed. Interesting times going forward.
I would not be suprised to see Aldi knocking on the door soon as plenty of cheap locations for stores and Kiwis will be looking to save some money which would make it easy for them to expand very quickly i.e 10-15 percent market share inside 3 years.
Possibly. Maybe the size of prize in NZ is too small for Aldi.
Having been into a Warehouse recently, I don't see them seriously competing with Kmart or even the $2 shops for discount business. The place was a mess: dirty, empty shelves, clutter and very ordinary product. I am not their target market, but I was shocked by the lack of care. Felt like there was no management. Maybe just the culture at one store, but I walked out and wondered if there was an opportunity to short the stock.
The Warehouse couldn't make hay while the sun shone. They stripped a lot of experience people out of their head office and now they are locked in with their half-backed solutions like 'The Marketplace'. They've added more and more 'leaders' from the United States while letting go of people with decades worth of service. The in-store experience is still a joke - you're lucky if the CDs are in alphabetical order. If were a shareholder, I'd be pissed, but I also would have sold out long ago.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.