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Countdown supermarkets 1H earnings fall 7.7% on rising cost of investment

Friday 23rd February 2018

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ASX-listed retailer Woolworths Group ramped up investment in its Countdown chain of supermarkets across New Zealand, leading to a 7.7 percent decline in first-half earnings with a similar effect expected in the second half.

Countdown's earnings before interest and tax fell to $150 million in the 27 Weeks ended Dec. 31 from $160 million a year earlier, outpacing a 3.6 percent increase in sales to $3.32 billion, the Sydney-based parent said in a statement. It flagged further investment is planned for the second half. 

"New Zealand food sales grew by 3.6 percent in the half with second quarter comparable sales growth of 3.3 percent, the highest in a number of years," Woolworth said. "As previously highlighted, FY18 is a year of investment and has impacted EBIT in the half, declining by 7.7 percent due to incremental investments in team hours, produce and digital initiatives," 

Woolworths' cost of doing business in Countdown supermarkets rose to 19.5 percent of sales in the half from 18.9 percent a year earlier, while gross margins were flat at 24 percent. 

Sales per square metre lifted 1.8 percent on a rolling 12-month basis. In the half, one Countdown store was opened and one was closed with two franchise stores opened. At the end of the half, there were 184 Countdown stores and 67 franchise stores.

Average prices decreased 0.1 percent, with ongoing activity to deliver lower prices, seasonal promotional activity and competitive pricing over the Christmas period while contending with dairy and produce market cost increases. 

Government figures Friday showed New Zealand retail sales rose in the fourth quarter, as Kiwis spent more on dining and drinking out, cars and parts, and on groceries. Sales at supermarket and grocery stores, the biggest industry at $4.6 billion sales in the quarter, lifted 1.4 percent.

Woolworths reported a 38 percent lift in first-half group net profit to A$969 million on sales of A$32.3 billion. 

The ASX-listed shares last traded at A$27.64 and have risen around 1.2 percent so far this year. 

(BusinessDesk)

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