Major retail chain The Warehouse Group is warning that a slowdown in consumer spending is likely in coming months - despite the fact it has been enjoying very strong trading since the lockdown ended.
And it is warning of the likely need for asset writedowns, while it is still not yet prepared to offer any profit guidance for the financial year that ends this month.
Additionally the company says its lenders have agreed to a waiver on some of the banking covenants for much of the 2021 financial year.
In an update sent to NZX on Thursday the company said that while post lockdown, a lift in consumer spending has been observed, "the underlying economic impacts of Covid-19 are yet to be fully reflected in consumer spending".
"Economic forecasts and the group’s customer survey results indicate that a slowdown in consumer spending is highly likely as the conclusion of the wage subsidy scheme further increases unemployment, and discretionary spending is impacted by mortgage deferral schemes rolling off later this year," the company said.
It said while trading had progressively weakened from the levels initially observed post-lockdown, it remains significantly elevated relative to last year.
The company gave the following breakdown both for the latest quarter to date (QTD) and the year to date (YTD):
"Online demand increased significantly during Covid alert Levels 4 and 3 and has continued to be strong since stores reopened. Year to date online sales are up 54.8%, representing 11.8% of all Group sales versus 7.8% for the full year FY19," the company said.
It said there appeared to have been a "step change" in online sales following the surge during lockdown with online sales as percentage of Group sales being 9.3% since the first full week of re-opening, which was the week beginning May 18.
This indicated that customers "are increasingly moving toward online shopping options".
"However, fulfilment costs involved in servicing online sales means that the profitability of this channel is currently less than that achieved through our in-store transactions. These costs were further amplified given the rapid escalation to unprecedented levels of online sales through Level 3 and 4."
A benefit of the current strength of trading was that the group had further bolstered its liquidity position and was prepared for adverse trading conditions, the company said.
"The NZX listed bond of $125 million was repaid on June 15 and the Group retains undrawn bank facilities of $330 million. The Group’s banks have granted a waiver on its interest coverage covenant for Q2, Q3 and Q4 of FY21, if required."
The Warehouse Group previously withdrew its profit guidance for the financial year to the end of July 2020.
It said on Thursday that adjusted net profit after tax (NPAT) would be subject to the year end audit process.
"...There is an expectation that this could include impairment and provisioning against assets as a consequence of ongoing economic impacts created by Covid-19. The Board therefore reaffirms its position on withholding guidance on FY20 adjusted NPAT."