Big box retailer The Warehouse is signalling a step-change in its approach after a period of IT underinvestment.
Releasing its annual report today and revealing a plunging net profit, The Warehouse signalled legacy systems within the group need to be updated to become "more customer responsive, and deliver modern services".
Key components of The Warehouse's IT new strategy will include the adoption of cloud infrastructure and SaaS applications, the transformation of business processes to be more efficient and cost effective, a focus on the use and application of data and deploying machine learning and artificial intelligence (AI).
While efforts to streamline and modernise The Warehouse's business have been underway for several years, the threat posed by Amazon, which arrived in the Australia and New Zealand (A/NZ) region this year, is also likely to have been a factor in the decision to accelerate.
The shift will require significant investment, the company told investors, but costs will become more opex-centric rather than as capital expenditure, signalling that procurement will be increasingly achieved as-a-service via subscription and usage charges.
In addition to a shift to cloud and software-as-a-service (SaaS) services and a data centre consolidation, the company said it was investigating the establishment of a new business segment for digital innovation that will be separated from the retail business.
"We expect FY18 to be a year of operational investment in the business to create the path for future earnings growth," the company said in its NZX report. "The earnings drag of Financial Services has been removed. In the short term, there will be one-off investments and costs that will drive the transformation and evolution of the business."
The Warehouse's accounts also reveal a $17.3 million impairment of software included in the $18 million sale of its financial services business to a subsidiary of SBS Bank.
"Based on management’s assessment of the expected net proceeds to be realised as part of the business sale the group has made a further impairment, this time to the carrying value of computer software to reduce its carrying amount to its anticipated net realisable value," a note explains.
Meanwhile, the Noel Leeming electronics and computer chain once again shone in The Warehouse's results, recording strong growth in operating profit of 59.9 per cent.
Overall, a strong second half performance delivered a result above guidance. Adjusted net profit after tax of $59.2 million for the full year was down 7.7 per cent compared to $64.1 million in 2016, but above the guidance range of $54-$58 million previously indicated to the market.
Group retail sales for the year were $2,981 million, up 1.9 per cent compared to 2016. Meanwhile, gross profit of $971.9 million increased by 1.4 per cent year-on-year while costs of doing business of $864.1 million increased by 2.0 per cent.
When the results are adjusted for the sale of The Warehouse's financial services business, completed on 9 September, adjusted net profit after tax from continuing operations represented $68.2 million, a reduction of 1.4 per cent compared $69.2 million in 2016.
Reported net profit after tax for the full year was $20.4 million compared to $78.3 million in 2016.
Group online sales in New Zealand were $199.9 million, up 18.4 per cent compared to the same period last year. The Warehouse and Noel Leeming businesses recorded increases of 25 per cent and 54.1 per cent respectively, driven by a mix of promotions and the relaunch of the on-line stores.
As a percentage of total sales, online finished the year at 6.7 per cent compared to 5.8 per cent last year.