The Warehouse Group Limited

This report is an updated version of the report published on 23^rd May 2022 at 5:17 PM (GMT +12) 

Company Overview: The Warehouse Group Limited (NZX: WHS) is one of the largest retailing groups in New Zealand. It consists of six core retail brands: The Warehouse, Warehouse Stationery, Noel Leeming, Torpedo7, 1-day and, TheMarket. Further, it has 260+ retail stores, online stores, and distribution centres in New Zealand.

WHS Details

The market capitalisation of the company stood at ~$1.14 billion on 23^rd May 2022.

Looking at the past performance over FY17 to FY21, WHS’ top line grew with a compounded annual growth rate (CAGR) of 3.5%. Total Revenue of the company improved from $2,980.8 million in FY17 to $3,414.6 million in FY21. Net Income improved from $20.4 million in FY17 to $117.7 million in FY21.

Exhibit 1: Financial Statistics

Source: Analysis by Kalkine Group

Result Performance for H1FY22 (For the Half Year Ended 30 January 2022)

• The Warehouse Group announced half year results for the six months ending 30 January 2022 and the group sales were $1,730.0 Mn, down 4.3% on the FY21 half year, but up 2.8% on pre-COVID-19 period of FY20 half year.
• Reported Net Profit After Tax, including unusual items, reduced by 8.2% to $50.4 million. Adjusted Net Profit After Tax stood at $48.0 million, compared to $111.0 million in the pcp prior to the repayment of the $67.6 million (before tax) wage subsidy in December 2020.
• The Group holds cash on hand of $150.0 million at the end of H1FY22 (FY21: $160.5 million) and total liquidity including cash and available facilities amounted to $480.0 million (FY21: $490.5 million.

Q3FY22 Trading Update

WHS has reported total Group sales of $771.6 million during the third quarter ended 1 May 2022, down 2.5% YoY. But the sales were up 31.6% over Q3FY20 which was severely impacted by the first COVID-19 Level 4 lockdown, and up 8.0% on FY19 pre-COVID-19 levels. Gross profit margin, however, increased by 10 basis points to 35.6% in Q3FY22 compared to Q3FY21 and improved by 90 basis points compared to H1FY22 driven by several initiatives executed across the Group to address the challenges.

Online Sales Continued to Gain Traction

WHS’ online sales continued to gain momentum as the group online sales increased to $86.6 million in Q3FY22, higher by 7.4% compared to Q3FY21, and constituted 11.2% of total sales. Further, the year-to-date Group online sales increased significantly to $422.2 million, up 50.2% compared to YTD FY21 and represents 16.9% of total sales, compared to 10.8% of total sales in FY21.

Notably, the click and collect sales continued to grow as the convenient way for customers. The total click and collect sales were $36.9 Mn in Q3 FY 2022, making up 47.3% of the online sales, and totalling $188.7 Mn year to date making up 49.5% of YTD online sales.

Top 10 Shareholders: 

The top 10 shareholders have been highlighted in the table, which together forms ~74.21% of the total shareholding.

Exhibit 2: Top 10 Shareholders

Source: Analysis by Kalkine Group

A Quick Look at Key Metrics:

The company has posted a healthy improvement in both EBITDA margin and net margin over FY17-21 to reach 12.7% and 3.4% in FY21, from 5.6% and 2.4% in FY17, respectively. The company has posted a significant uptick in ROE to 28.4% in FY21 from 14.2% in FY17.

Exhibit 3: Key Metrics

Analysis by Kalkine Group

Outlook:

TheMarket.com platform continued to grow and, with more than 3.5 million active products currently on offer, TheMarket.com stays on track to achieve more than $100 million in Gross Transaction Value for FY22.

The trading environment remains tough owing to high inflation that is hampering consumer spending, as well as shipping constraints which is delaying stock availability, and lower in-store foot traffic. The company expects shipping schedules to stay constrained through Q4 and into FY23.

Meanwhile, the group expects its capital expenditure for the full year FY22 to remain around $135 million. Besides, the company is modernising and aligning its store footprint to cater to the changing customer behaviours and expectations.

Risks:

The company is exposed to various financial risks including, liquidity risk, credit risk, and market risk. Its overall risk management programme focuses on the uncertainty of financial markets and seeks to lessen the potential adverse effects on its financial performance. Further, the company continues to adapt its business to changing consumer behaviours as well as government regulation which are affecting its business and the retail industry.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Technical Overview:

Chart:

Source: REFINITIV

Note: Purple Color Line Reflects RSI (14-Period)

Stock Performance:

The stock has been valued using P/E multiple-based illustrative relative valuation and the target price so arrived reflects the potential rise of low double-digit (in % terms). A slight premium has been applied to P/E Multiple (NTM) (Peer Average) considering its acceleration in online sales, uptick in gross margin in Q3FY22 and robust financial position.

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Considering the aforementioned factors, a “Buy” recommendation has been assigned on the stock at the current market price of $3.320 per share (New Zealand Time: 4:19 PM (GMT +12)) as on 23^rd May 2022.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Disclaimer

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