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Woolworths posts first-half loss on horror A$1.9B write-down on Masters, NZ earnings steady

Friday 26th February 2016

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Woolworths, the Australian supermarket group, reported its first loss in 23 years after taking A$1.9 billion in write-downs on its ill-fated foray into home improvement, although its New Zealand Countdown chain held earnings steady.

The group’s net loss was A$927.7 million in the six months ending Jan. 3, compared to a profit of A$1.28 billion a year earlier, the Australian company said in a statement. Excluding significant items, net profit dropped by one third to A$925.8 million which was within the guidance it gave the market in October. Sales fell 1.4 percent to A$32.6 billion as competition from Coles and Aldi continued to bite.

After months of speculation, the group’s supermarkets boss Brad Banducci has been appointed to step up to the role of chief executive to help rebuild the business and return it to sustainable growth.

Its Countdown supermarkets a bright spot in the results, reporting earning before interest and tax of $170.6 million, up just under 1 percent from the $169.1 million achieved a year earlier. Sales rose 4 percent to $3.2 billion assisted by bulk sales of gift cards. Without the cards, overall sales growth was 2.8 per cent.

Chairman Gordon Cairns said the Countdown supermarkets were operating in a “competitive market driven by a strong focus on costs”.  

The company said comparable customer numbers and basket size had continued to grow over the past six months, though it didn’t provide figures on that or to back its claim of being New Zealand’s leading online grocery retailer. It said online sales had a double digit increase in the first-half and it’s extending the times for home delivery and making click and collect available in all stores.

Countdown’s cost of doing business in New Zealand rose 49 basis points to 18.14 percent due to higher employee incentive provisions.  

It expanded its pharmacy business to 12 in-store sites and it had comparable sales growth of 29 percent.

Countdown opened a net six new stores and refurbished two during the half and plans to open another two stores and two replacement stores in the second half.

The Woolworths' board cut its interim dividend by 34 percent to 44 Australian cents, following the group loss.

Cairns said it could take three to five years to turnaround the business.

“At the AGM I clearly outlined clear business priorities to rebuild Woolworths, with a particular focus on our supermarkets business to ensure we are competing vigorously,” he said. “This is underway with significant investment in improving the customer experience.”

Comparable sales in its Australian food and liquor business fell 0.8 percent to A$22.3 billion during the half as the chain cut prices on popular items to woo back customers, given strong competition from Coles and Aldi. The board is not expecting a significant improvement in comparable sales in its Australian supermarkets in the second half with the market likely to remain competitive and due to price deflation.

Banducci’s appointment triggered the departure of former CEO Grant O’Brien, who has been holding the fort since his retirement in June. He’s expected to gain almost A$10 million through the company’s defined benefit superannuation scheme despite being held responsible for its disastrous move into hardware and the loss-making Masters chain.

Masters widened its loss before interest and tax in the half by 23 percent to A$137.9 million despite increased sales. The board has written down A$1.9 billion on the chain as it considers whether to sell or wind it up and indicated a further A$70 million to A$80 million of restructuring costs is likely to be incurred in the second half.

The ASX-listed shares fell 1.5 percent to A$21.57, and have dropped 11 percent this year.

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