Business Description:
The Warehouse Group Limited (WHS) is primarily a discount department store with operations in New Zealand. The stores provide a broad range of products including manchester, appliances & electronics, homewares, photo processing, toys, outdoor living, hardware, clothing, footwear, health and beauty products, confectionery and jewellery. The Group also operates Warehouse Stationery and The Warehouse Financial Services.

Strategy Analysis:
WHS will rollout more stores in the future. It aims to increase its footprint by 33,000 square metres or by 8% over the next five years. This will likely keep capital expenditure at elevated levels of between NZ$118m in FY12 falling to ~NZ$70m in FY15 and FY16. It will seek to open small format stores in areas where a full service store is not feasible. Management is creating three sub-brands, which will be called the Warehouse Local, the Warehouse Store and the Warehouse Extra in a bid to achieve organic growth. The local stores will be small footprint stores with less the half the area of a conventional WHS store. It will have limited categories such as apparel and homeware. WHS argues that they control just 8-9% for the non food market at present and would like to leverage the 92% they do not control, so overtime they would like to see their share of non food go up through footprint growth and by entering into new categories like outdoor and camping equipment, jewellery etc. Management has ambitious plans to grow footprint for the stationery business. It is talking about a 15% increase in area over the next five years which is the biggest ever expansion the division has ever experienced. Management sees the biggest opportunity to increase margins in the stationery business from 4% currently to around 8% over the longer term. Additionally, notwithstanding cost pressures because of a rising Chinese currency, management thinks it can maintain margins at current levels through cost efficiencies. Warehouse Group reported NPAT down 21.6% to NZ$60.19m for the year ended 1 August 2010. The non cash charge was included in the Company's Financial Statements to achieve compliance with International Financial Reporting Standards. Revenues from ordinary activities were NZ$1.67bn, down 2.8% from last year. Diluted EPS was 19.4 NZ cents compared to 24.8 NZ cents last year. Net operating cash flow was NZ$129.15m compared to NZ$194.46m last year. The final dividend declared was 8.50 NZ cents, taking the full year dividend to 30.5 NZ cents compared with NZ 31 cents last year. Looking ahead, uncertainty and swings in consumer confidence remain a feature of the short term economic outlook. The Company expects consumer spending to continue its gradual improvement over the next 12 months but will likely remain patchy.