Investment Rating WHS is NZ's leading discount retail chain with 128 general merchandise and stationery stores spread across New Zealand. A three year transformation program aims at improving brand image, lowering cost and working capital, enhancing service levels and including more branded products. While this might improve consumer perception it is not the right time to invest in WHS. We expect a structural downturn in EBIT margins from adverse sales mix, sustained competitive pressures and a weakening NZ$. Difficult macro economic environment and the possibility of Woolworths making an entry into the NZ general merchandise market are other potential headwinds. Longer term growth prospects are uncertain as it has no game plan to expand beyond NZ, having recently burnt its fingers in Australia. It is unlikely to grow earnings at a double digit rate over the longer term by being just a NZ retailer.
