Store rejuvenation expected to pay off for Warehouse

Warehouse Group, New Zealand's largest publicly listed retailer, expects its "red sheds" to return to earnings growth next financial year as its store rejuvenation bears fruit.

And it says the success of its drive to expand through acquisitions should be evident within three years.

Under chief executive Mark Powell the company is investing $430 million over five years in a bid to lure back customers.

Mr Powell says that two thirds of the way through the programme, the strategy is paying off with the red sheds - the distinctive large store general goods format - posting 12 consecutive quarters of same store sales growth following seven years of decline.

"That's a big swing," Mr Powell.

"We have got to put a lot of investment into the red sheds to turn around customer perception, invest in the stores, invest in the stock and invest in people. This is definitely starting to translate into increased transactions from more customers coming into store."

Still, analysts and investors say the store improvements and rise in sales have come at the expense of profitability, with margins and profits at the red sheds declining in the first half of this financial year.

Mr Powell concedes that the rise in sales hasn't yet translated into profits.

"It hasn't translated into operating leverage yet," Mr Powell said. "The key word is yet. We would want to see it translating into operating leverage in the next financial year."

He says Warehouse had underinvested in its 92 discount stores in the past, refitting just 10 stores in the nine years before he took over three years ago, when it should have been upgrading 12 to 13 stores a year.

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Store rejuvenation expected to pay off for Warehouse