Retail magnates the Normans increase their stake in The Warehouse
James Pascoe Group owners Anne and David Norman have lifted their stake in The Warehouse but an analyst says it does not signal a takeover attempt — at least not yet.
The couple has bought 265,539 shares worth $540,707, increasing their stake to 19.7 per cent from 18.6 per cent.
The Normans took their initial stake in the company in the middle of 2014 and have been steadily increasing their shareholding since.
The Warehouse Group’s share price is down 30 per cent since the Normans first bought into the company. This is their first purchase of more shares since 2016.
Craigs Investment Partners senior research analyst Mohandeep Singh said the increase in shareholding indicated that the Normans see value in The Warehouse but did not signal a takeover attempt.
“Their total holding is over 68 million shares so it is only a drop in the ocean, another one per cent,” Singh said. “It doesn’t materially move the dial in terms of if they [do] have a bigger game plan.”
Singh said the Normans were probably taking advantage of the retailer’s “cheap” share price, yesterday closing at $2.04.
The Tindall Foundation and Warehouse founder Stephen Tindall own a combined 48 per cent of The Warehouse shares — a blocking stake, even if the Normans did want to take over the retailer, he said.
Adding The Warehouse Group to James Pascoe Group’s retail empire of Farmers, Whitcoulls and Pascoes could be seen as an attractive option, Singh said.
“The Warehouse is the [country’s] biggest retailer and has a massive distribution network throughout the country so it would be attractive to anybody who wanted to come into the space because you would get some scale advantage,” he said.
A third-quarter sales update from The Warehouse yesterday showed that sales advanced 2.6 per cent overall but sales were down for the “Red Sheds” and “Blue Sheds” (Warehouse Stationery), the key profit drivers for the business.
Red Shed sales were down 2.8 per cent and Blue Sheds’ down 5.1 per cent. Sales for Noel Leeming were up more than 10 per cent, Torpedo 7 sales were up more than 6 per cent.
“Noel Leeming and Torpedo 7, the profit margin they make is about half what the Red Sheds and the Blue Sheds make. From a revenue perspective it looks good but the margin is a lot lower on those two brands,” Singh said. “The profitable parts of the business are those Red and Blue Sheds and their sales are declining.”
The retailer’s move to an everyday low-pricing model, part of its transformation programme, was partly responsible for that, Singh said.
Its current transformation “strategy refresh” is the group’s third in 10 years.
“They have had a few goes at these refreshes and they have disappointed,” Singh said.
“I don’t think you can blame the market for being a little bit sceptical about the potential for this one to work. Over the past 10 years earnings are down 25 per cent in a period where it’s done a lot of strategy refresh and spent $200 to $300 million in the last five years alone to try to get the business moving.”
The Warehouse said benefits of its transformation will begin to be seen in 2019.
Retail analyst Chris Wilkinson said The Warehouse’s performance was a concern but it was natural that the Normans would be interested in the retailer.
“With the rapid changes in retail they will be looking for plan B and plan C.
“The future of retail relies a lot on being able to reduce costs, being able to get efficient supply chains, being able to secure volume and owning large parts of the market,” Wilkinson said.
Its poor performance could be put down to its stores lacking “aspiration” and a competitive edge, Wilkinson said.
“Their stores, in comparison with competitors like Kmart, are looking increasingly bland. The challenge for them is, whilst they may look to put in some more contemporary ranges and even if they got the buying right, their shop environment doesn’t match what’s being delivered elsewhere in the market.
“You can understand why consumers are looking elsewhere.”
Hiring more executives from the US to lead the company was also not proving to be in the company’s best interests, Wilkinson said.