I am pleased to report the second-highest Group sales in our history and our highest sales for The Warehouse in a challenging economic year for both us and our customers.
While sales were strong, FY23 was disappointing as our margin and profitability were compromised with increased costs, supply chain disruptions in the first half, and increased promotional and discounting activity to drive sales. Torpedo7 was a particular challenge during the year as sales were impacted by decreased consumer demand and profitability was significantly affected.
Adjusted net profit after tax was $37.5 million in FY23, down 56.2% on a very strong FY22 result of $85.5 million.
As we continue to invest in the transformation of the Group and our infrastructure in particular, this period of peak spending has coincided with a collapse in consumer confidence exacerbated by a change in accounting procedures, reducing capitalisation. We remain committed to our strategy, but the alignment of these actions has put pressure on our business and has impacted our performance in FY23.
We have taken extensive action on our strategic reprioritisation initiatives to improve performance, and I am encouraged that we are better positioned to weather the economic headwinds that we expect will continue in FY24.
We are pleased to have achieved a Group sales result of $3.4 billion in FY23, growing 3.2% on FY22, with The Warehouse brand achieving $1.9 billion in sales. This is the highest result on record, and increased 9.6% on last year.
Even with our strong sales growth, we have witnessed fundamental shifts in discretionary spending while managing the impact of inflation on our costs during a year of planned investment in critical infrastructure.
In the current challenging macroeconomic environment, New Zealanders have limited their spending on high-ticket items like appliances, televisions and bikes and have had to focus on the essentials over our peak period. We are proud to have provided real value for our customers at The Warehouse, keeping essential items affordable, and have seen this reflected in increased sales this year. However, the shift in consumer spending follows global trends and has challenged Noel Leeming and Torpedo7’s performance, along with the added pressure of poor weather in the critical summer period, reducing interest in outdoor items.
We have had significant challenges with Torpedo7, resulting in an operating loss for the year of $22.2 million. As at FY23 we have provided for an inventory impairment of $4.6 million against Torpedo7 to manage excess and aged stock. We have a recovery plan in place for the business and this will be a major focus in FY24.
TheMarket.com loss was stemmed in the second half – improving from a $16 million loss in the first half to a loss of $6 million in the second half.
We’ve continued to deliver the best value for our customers across all our brands despite the cost of goods increasing materially, including shipping costs and MarketClub promotions, which impacted our margins. In the first half of the year, especially, we did not pass on all of the increased cost of product and cost of doing business (CODB), in particular wage pressures, to our customers. We have since taken action and implemented initiatives to recover some of these cost pressures and margin decline experienced in the first half and are pleased to see some improvement in the second half.
Our strategic reprioritisation is focused on improving operational performance by minimising cost to serve, managing gross profit margin, and reducing working capital and CODB, as well as rebalancing capital expenditure across the Group.
In January 2023 we made the difficult decision to reduce labour costs in our Store Support Office. This is always a very challenging time for all those affected and, while this unfortunately resulted in reducing 340 roles, this has set the Group up for increased efficiency, greater productivity, and a laser focus on operational and financial priorities, while reducing CODB.
Value for Kiwis
Rising food prices has been a harsh reality for New Zealanders in the past year, and there’s a clear need for access to the essentials at reliable and affordable prices. We have taken significant steps forward in our grocery offering at The Warehouse during this time, expanding our range and launching butter, coffee, pasta and sauces under our Market Kitchen brand, and trialling fresh fruit and vegetables at affordable prices in 12 of our stores.
Customers have embraced our offering, with grocery sales growing 26.1% in FY23, contributing to 18.7% of The Warehouse sales. Our challenge is to carry on fighting for access to wholesale supply at equitable cost prices to continue to achieve savings for our customers.
Our loyalty programme, MarketClub, now has over 1.3 million members, who represent our most engaged customers. Through MarketClub, we have been able to help customers save on essentials like nappies, butter and hygiene products in FY23.
This year The Warehouse secured a new value range of Samsung and Dyson products, allowing us to offer quality brands at affordable prices, with a more extensive and specialised range supported at Noel Leeming. This year Noel Leeming was proud to be one of the first retailers in the world to stock Starlink, connecting thousands of customers to high-quality internet throughout New Zealand since launch.
Expanding efficiency and revenue
Our transformation and agile model have allowed us to expand into new revenue sources and secure cost efficiencies. We have recently integrated Torpedo7 into our agile structure and ways of working to unlock Group-wide efficiencies.
Our Group Marketplace initiative was launched in October 2022, integrating some of the TheMarket.com products onto The Warehouse website and app. This extended our range online, adding over 103,000 products from 71 merchants to our existing online customer base.
MarketMedia, our retail media network, is scaling quickly, achieving several successful campaigns with suppliers in FY23 and growing revenue year on year. Improvements in supply have also enabled us to double our margin on retail media revenues compared to last year. Looking ahead, we are taking a significant step forward and launching physical retail media screens across The Warehouse and Noel Leeming store network to deliver a new marketing and media channel for our brands and suppliers to reach and convert customers shopping in our stores.
FY23 continued to see us invest in our infrastructure capability, completing existing major programmes of work to return operational efficiencies. The new Enterprise Resource Planning Finance Inventory (ERPFI) system is progressing well. This will provide more timely reporting, project accounting, real-time inventory management and enable improved stock availability. Continued purposeful investment in infrastructure that will reduce our cost to serve long term and enhance our customer experience remains a priority for the Group.
This year, I am very proud of the progress we continue to make on making sustainable living easy and affordable for everyone. As a team, we have challenged ourselves by asking, “Does it pass the Tomorrow Test?” in everything we do. While it’s a simple sentence, it’s a big question and we won’t have the perfect answer every time. But every time we ask the question and make more headway in the right direction, we make a difference.
The Tomorrow Test has sparked incredible momentum in our team members’ actions every day and is showing up in our stores from an increase in products with sustainable attributes to our expanding circularity programmes like e-waste and soft-plastic recycling. It’s also encouraged us to innovate and look for new solutions like our new energy partnership to power over 260 Group sites with solar energy and the My Recycle Hub pilot, both of which we share more about in the Caring for our Environment section of this report.
While FY23 has been a challenging year, our initiatives to improve operational performance and reduce our CODB have strengthened our position. I am optimistic we will maintain this momentum into FY24, and our focus on improving financial performance will continue.
Looking ahead, we anticipate that FY24 will be challenging for our customers as they face into an unpredictable economic outlook, and we know we have an important part to play in offering Kiwis great value on the things they need most.
I thank our Chair, Joan Withers, and our Board for their unwavering support and dedication to the organisation. I also want to acknowledge and thank our Group CFO, Jonathan Oram, who departs The Warehouse Group in October, for his exceptional leadership over the past five years. Jonathan played a key role in our retail transformation journey and our flip to agile, performed a critical role in helping us manage through the COVID-19 pandemic, and helped the Group deliver record financial results in FY21. We wish him all the best in his new role.
In addition, I wish to thank our 11,000 strong team who continue to show up for their local communities. We stand together by our purpose of helping Kiwis live better every day, while providing sustainable long- term returns for our shareholders.
Nick Grayston – CEO