The Warehouse has found its turnaround hiding in the stockroom

The Warehouse Group’s chief executive Mark Stirton has told investors he can take operating profit from $22.6 million to $100 million within three to five years. That sounds like a moonshot until you remember $100 million was the norm for the 12 years before 2023. This is a plan to get back to where the business used to be, and the most convincing thing about it is how unglamorous it is.

The engine is not marketing, not a new app and not a sales surge. It is store standards, supply chain discipline and sharper buying. For a low-margin retailer, that is exactly where the money is won or lost.

A profit built without a single extra sale

The FY26 result is the proof of concept. Group sales of $3.0 billion fell 1.9% on a reported basis, yet operating profit climbed from $1.3 million to $22.6 million. The group swung to a net profit of $11.2 million from a $2.8 million loss.

How? Gross margin rose 40 basis points to 32.6%, and the cost of doing business fell $29.8 million. Inventory dropped 7.9% to $438.8 million, which helped generate $79.4 million of free cash flow and cut net debt from $96.1 million to $17.0 million.

“We’re buying better, managing inventory more effectively, improving our ranges and pricing, and running the business with greater discipline,” Stirton said at the result. Any business owner who has watched cash vanish into slow-moving stock will recognise the logic.

Noel Leeming carried the load while the Red Shed lagged

The recovery was lopsided. Noel Leeming lifted operating profit to $21.8 million from $11.7 million, and Warehouse Stationery nearly doubled to $15.9 million. The Warehouse itself, the brand on the company’s name, still lost $7.5 million.

There are signs of life. The Red Shed narrowed its grocery range to staples such as bread, eggs, coffee and olive oil, and sold more apparel and homewares at full price. That is a retailer admitting it cannot be everything to everyone, and making money by doing less, better.

The diagnosis is not new. In 2025, shortly after taking the top job, Stirton compared retail to a factory that “needs discipline end to end”, and conceded customers had started saying the brand was “boring” and “stale”. A former Mr Price finance chief who joined as CFO in April 2024, he has run the turnaround like a CFO would: margins first.

150 basis points, no heroics required

The investor day margin bridge is refreshingly specific. Buying better is worth an estimated 40 basis points, selling more at full price another 40, and shifting the mix toward higher-margin categories and own brands 70 more. Automated goods-to-person picking at the North Island distribution centre goes live in August 2027, alongside wider RFID tracking.

On today’s $3.0 billion of sales, 150 basis points is roughly $45 million of extra gross profit, enough on its own to take operating profit into the high $60 millions before any sales growth. The rest has to come from further cost cuts, the planned four to five new stores a year, and a consumer recovery. Stirton insists the path “does not rely on any single initiative”, and the arithmetic broadly backs him.

Where the plan can still come undone

Forsyth Barr analysts Paul Koraua and Rohan Koreman-Smit call the strategy “sensible” but warn delivery will be harder given a subdued consumer, historical underinvestment in stores and legacy systems that need replacing. That is fair. Replacing core IT mid-turnaround has sunk better-funded retailers.

The competitive picture is also unforgiving. Temu and the cost-of-living squeeze have trained New Zealanders to hunt bargains, and Kmart’s in-house Anko brand gives it control over product speed that a traditional buy-and-stock model lacks. The cost reset is unfinished too, with cost of doing business at 31.8% of sales against a target below 31%.

What Christmas will tell us

Stirton calls himself “cautiously optimistic” heading into peak trading, with consumer confidence rising but the election adding uncertainty. The first test of the plan is simple: does the Red Shed get back into the black?

If it does, The Warehouse will have shown that a retailer can rebuild profit without waiting for shoppers to rescue it. That is a lesson worth stealing for any business on thin margins. Fix the buying, fix the stock, fix the floor. The sales can come later.

Sources

• NZ Herald: The Warehouse CEO plans to revamp stores, upgrade supply chain and make better product buying decisions (2026-11-04)
• NZX: The Warehouse Group FY26 Annual Results Announcement (2026-09-29)
• RNZ: The Warehouse Group posts $11.2m net profit in turnaround (2026-09-30)
• The Warehouse Group: FY26 Annual Report (2026-09-29)
• InsideRetail: The Warehouse Group returns from the red; turnaround continues (2026-09-30)
• Supermarket News: Warehouse narrows grocery range as group profit improves (2026-09-30)
• NZ Herald: Inside new Warehouse CEO Mark Stirton’s push to modernise stores, rebuild profits (2025-11-14)
• BusinessDesk: How The Warehouse hopes to turn things around in 2026 (2026-09-18)
• NZX: The Warehouse Group 2026 Investor Day Strategy Announcement (2026-11-02)
• The Post: Warehouse Group plans to open four to five new stores a year to turnaround flagging fortunes (2026-11-02)
• InsideRetail: New Warehouse Group strategy eyes $100 million operating target (2026-11-02)
• The Post: The Warehouse Group returns to profit in a difficult market and uncertain Christmas season (2026-09-30)