Woolworths warns first-half profit to fall as much as 35pc

Sue Mitchell
October 29, 2015
The Age

Woolworths has warned that net profits will fall as much as 35 per cent to between $900 million and $1 billion in the December half as its invests more than $500 million into grocery prices and service to reverse declining sales.
The new profit guidance was issued on Thursday after Woolworths reported further weakness in sales at its earnings engine room, Australian food and liquor, and a sharp drop in sales in its general merchandise business in the September quarter.
Same-store Australian food and liquor sales fell for the second consecutive quarter – down 1 per cent in the three months ended October 4 – as Woolworths struggled to reverse customer perceptions that its prices are higher than Coles.
The decline in first-quarter same-store food and liquor sales followed a 0.9 per cent drop in the June quarter, indicating that Woolworths supermarkets are still losing momentum even after the retailer invested more than $300 million into reducing grocery prices and improving in-store service over the last eight months.
​​​Analysts had been forecasting same-store sales to fall between 0.5 per cent and 1.1 per cent.
Woolworths has vowed to invest more than $500 million into reducing grocery prices and improving store service in a bid to “neutralise” Coles and “contain” fast-growing discounter Aldi.
However, analysts believe Woolworths is still losing market share. Last week Coles reported a 3.6 per cent increase in September quarter same-store food and liquor sales after investing about $100 million into grocery prices, double its investment in the September quarter last year, sending prices down by 1.3 per cent, or almost 2 per cent excluding tobacco.
Woolworths said that, as a consequence of its heavy investment into prices and stores, group net profit before significant items was expected to fall between 28 per cent and 35 per cent to between $900 million and $1 billion.
Woolworths’ New Zealand supermarkets outperformed those in Australia, with same-store sales rising 2.5 per cent, beating forecasts around 1 per cent.
​Same-store sales fell at discount department store chain BIG W for the seventh consecutive quarter, dropping 8.1 per cent after plunging 11.7 per cent in the previous quarter.
Big W has cleared most of its excess inventory but has been struggling to get stock on the shelves after problems implementing a new merchandise management system.
BIG W managing director Alistair McGeorge stepped down in August for health reasons after a complaint from an employee about his workplace behaviour and has been replaced on an interim basis by Woolworths veteran Penny Winn, the former head of retail.
In home improvement, sales rose 20.3 per cent after Woolworths opened new Masters stores and introduced a new format.
Woolworths total sales for the September quarter fell 2.5 per cent to $ 15.75 billion.

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