Warehouse Group’s balance sheet ready for acquisitions, says CEO Nick Grayston

Warehouse Group chief executive Nick Grayston says the retail group’s balance sheet and strong cash financial position is at a point where it is ready for acquisitions.

Talking to the Herald this morning after the group announced a record $55 million net profit after tax in the six months to January 31 – almost double the profit it turned in the same period a year earlier, Grayston said the group was always looking for opportunities to introduce new brands into its portfolio.

“Absolutely we’re open to [acquisitions], we always look for opportunities.

“As you’ll see from our liquidity position, $514m of liquidity, we have the capacity right now. I wouldn’t rule out an acquisition or a partnership.”

He could not comment on any retail chains the group had its eye on, or within what market categories, or whether any progress on a takeover was already under way.

Rival appetite for Torpedo7

Grayston, who has been group chief executive for five years, said the Warehouse had “significantly” grown its market share over the past six months, particularly within Noel Leeming and Torpedo7’s market categories.

He could not reveal the group’s percentage of its current market share.

The billionaire owners of Australia’s Spotlight Group have their eye on Torpedo7.

Zac Fried, director and co-chairman of Spotlight Group, told the Herald this month that the group, which already operates Spotlight stores in New Zealand, was interested in acquiring the outdoor equipment brand, which is similar to its Anaconda brand operating in Australia, as a way of entering and expanding its footprint in the market.

Grayston said the group was not interested in selling the profitable business: “Never say never, but it is not part of our strategy.”

Torpedo7 was a “successfully performing brand” which had undergone a major turnaround, he said. The group acquired a majority stake in the Kiwi brand in 2013 for $33m.

The Warehouse Group, which operates The Warehouse, Warehouse Stationery, Noel Leeming, Torpedo7 and TheMarket.com, increased its net profit after tax in the period by 83.6 per cent to $54.9m, compared to $29.1m in the same period a year earlier.

Total group sales increased by 7.4 per cent to $1.8 billion in the first half of the 2021 financial year, compared to $1.68b in 2020, while its online sales grew 50 per cent; now accounting for almost 12 per cent of all sales.

The group’s four bricks-and-mortar chains each posted record revenue in the first half.

Asked if the coronavirus pandemic had been a blessing for the group, Grayston said the financial performance of the company could be attributed to transformative operating changes the group had first implemented in 2017 now paying off.

“We’ve been working for three and a half years on our transformation and so [the result] is more about getting the benefits out of a lot of the strategies we have put into place.

“The fact that we’ve got a 7.4 per cent increase in sales is overshadowed by the benefit of gross profit growing at more than twice that rate – that’s to do with the initiatives we have put into place around buying better, using our sourcing capabilities, using data science to price the goods, everyday low prices and less promotions, plus great cost leverages.

“There is no question that there has been some benefits and some hits from Covid, of course the world would rather not have Covid, but it has meant Kiwis have stayed in the country, focused on nesting, often upgrading their consumer electronics – there have been some demand benefits, but $16b of incoming tourist money is lost and Kiwis spend $12b abroad so the country is not better off.”

Grayston said the bumper result was more to do with “everything the group had done” as opposed to the benefit of increased demand as a result of circumstances.

He said he expected financial gains for the group and shareholders to continue from here on out: “We believe the benefits are structural.”

The retail group today announced it had resumed its dividend payments, and would pay out an interim dividend of 13 cents per share, in addition to the special dividend of 5 cents declared in February.

The combined 18 cents per share payout was an all-time high for the group. Previously the highest dividend it had paid in its history was 17c in a single year, Grayston said.

The group has not declared a special dividend in at least five years.

In addition to the first half result, the group this morning announced it had introduced a new policy to distribute at least 70 per cent of the group’s full-year adjusted net profit after tax, a slight downgrade from the prescribed 75-85 per cent guidelines outlined previously.

Grayston said the new policy gave the group “flexibility while signalling its confidence in the ongoing strength of the business”.

Outlook for next six months

The Warehouse Group has five different infrastructure programmes under way at present. It recently launched a revamped website, is working through supply chain and distribution systems and processes, investment issues.

In addition to technological development, it will open new stores in the second half of the year, along with its newly opened Torpedo7 store in Napier and three new stores in Ormiston. It is also converting some of its outlets from standalone Warehouse Stationery stores to combined Warehouse and Stationery Warehouse stores.

Grayston said the group had begun looking at how it can use new technology to improve the shopping experience and serve customers.

“We live in an interesting age of conversion technology, and that’s why agile is so important because we need to be able to be nimble and move fast.”

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