The Warehouse Group said net profit slumped in the six months to January 29, dropping 61 per cent to $17.3 million compared to $44.4m the same period a year ago.

The shares plunged 32c, or 13.33 per cent to $2.08 in morning trading.

The retail giant said increased business costs and a slow second quarter during the key Christmas trading period drove the decline in bottom-line profit.

But overall sales were up 4.8 per cent on last year at $1.8 billion.

Chief executive Nick Grayston described the trading environment as challenging.

He confirmed restructuring plans would see up to 340 jobs cut and said the company was moving forward with the closure of its 1-day daily deal site operations.

“We have experienced a very challenging retail trading environment in the last six months, and we are taking decisive action to improve financial performance and operational efficiency across the group,” he said.

“This includes rebalancing capital expenditure to focus on operational performance and reprioritising transformation projects,” Grayston added.

“We have made some difficult cost-cutting decisions across the group including reducing labour costs at our Auckland Store Support Office, which will, unfortunately, see a reduction of up to 340 roles.

“We are also moving forward with the closure of 1-day operations and bringing TheMarket.com and Torpedo7 into our Group operating structure.”

The closure of 1-day operations and bringing TheMarket.com into the group operating structure will significantly improve cost efficiencies of TheMarket.com business, he said.

On the company’s outlook, Grayston said he expected it to remain challenging amid headwinds of increasing cost of living pressures and rising interest rates which were impacting customer spend, and general costs of doing business, including wage increases.

“While the macroeconomic outlook remains unpredictable, we are taking action to ensure the ongoing improvement in operational performance.

“We are committed to our strategy to create a future fit retailer to deliver great value for our customers, as well as completing existing major programmes of work to deliver operational efficiencies,” he added.

No interim dividend was declared with a decision reserved to year-end.

Operating earnings before tax also saw a steep 42 per cent decline, coming in at $45,6m for the last six months.

The company said $6.3m was spent on restructuring costs.

Grayston said the “group cost of doing business” increased by 3.5 per cent stemming from core systems development.

“With this investment has also come an increase in recurring operating costs in licence fees, continuous improvement and support.”

He added: “Deprecation has increased 18 per cent with the higher capital expenditure levels over the last couple of years.”

Noel Leeming sales are also coming off peak performance with customers slowing spending in this area, while a global decline in bike and fitness sales impacted Torpedo7 sales, Grayston said.

He added that Kiwis were buying less camping and water-related sporting products due to poor summer weather in the North Island.

Gross profit for the period was at $592.4 million, down 1.2 per cent on last year.

The company said gross profit was hit by increased clearance activity as well as the “purposeful investment in the group MarketClub membership programme, which now has more than 1 million members”.

Gross profit margins for the Warehouse dropped 200 basis points to 32.7 per cent last year.

Grayston said this was driven by a focus on giving customers good value on products, declined sales following adverse weather in the North Island and investment into promotions, member discounts and “grocery providing customers with value at a time of unfavourable cost increases”.

He said “container detention costs” led to the margin decline.

“Due to shipping delays and congestion, a container backlog was experienced at the group’s distribution centres which significantly increased detention costs.”

Grayston said The Warehouse’s grocery sales make up 22.2 per cent of the company’s total sales, up 34 per cent on last year.

“Over the last six months we have continued to expand our grocery range, and recently launched a fresh fruit and vegetable trial in six stores, which has been well received by our customers,” he said.

The company announced its fresh produce trial across select stores this year to push grocery sales.