Dick Smith restructure triggers fall in Woolworths profit

Rebecca Thurlow
Dow Jones Newswires
March 01, 2012

AUSTRALIA’S largest supermarket chain Woolworths reported that first-half net profit fell 17 per cent on costs associated with the restructuring and sale of its Dick Smith electronics stores.

Chief executive Grant O’Brien said: “This is a sound result considering subdued consumer confidence, deflationary pressures and the significant investment we are making in the business in line with our strategic priorities for growth.”

Woolworths, in a battle for dominance of the supermarket sector with Coles, which is owned by conglomerate Wesfarmers, said net profit for the six months to December 31 fell to $966.9 million from $1.16bn the previous year.

The result was broadly in line with the $961.4m average forecast of six analysts.

Australia’s retail sector is suffering from cautious consumers who are closing their wallets and saving more as the higher cost of living and concern over the global economy weighs on confidence.

Last month, Woolworths said it would close underperforming Dick Smith stores, sell the business and take a $300m provision in the half.

Woolworths also plans to create 10,000 jobs in fiscal 2012 to grow its store numbers, including its Master Home Improvement outlets – a joint venture with US giant Lowe’s – as it seeks to challenge the dominance of Wesfarmers’ Bunnings chain.

Woolworths said it anticipates before-tax start-up costs of up to $100m for Masters in the full year, depending on the pace of its store rollout.

The company said it expects trading to remain subdued over the remainder of the year, and continues to estimate full-year after-tax profit growth of 2 per cent to 6 per cent, excluding restructuring costs.

Revenue for the period rose 5 per cent to $29.91bn from the previous year’s $28.48bn.

The company also said it will pay an interim dividend of 59c a share, up from last year’s 57c.

During the half Woolworths served an additional 26.9m customers from the previous corresponding period, a 3.8 per cent increase.
This reflected improved customer buying power through price investment and deflation, Woolworths said.

Supermarkets achieved volume and market share growth, while general merchandise was affected by deflation in key categories, Woolworths said.

“We have continued to reinvest in lower prices, delivering greater value to customers,” it said.

The hotels business achieved sales growth with strong sales across both food and bar offerings, the company said.

Australian food and liquor sales for the half year were $19.6bn, an increase of $800m, or 4.3 per cent, on the previous corresponding period.

Comparable store sales in food and liquor for the first half increased by 1.5 per cent.

Sales growth was affected by significant deflation, particularly in produce, seafood, bakery and deli, in the second quarter, Woolworths said.

Produce deflation occurred in all months of the second quarter and by December it had reached double digits, the company said.

“Part of this deflation resulted from Woolworths lowering its prices to meet increasing customer demand for value,” the company said.

Woolworths opened 25 Australian supermarkets during the first half, bringing the total to 864.

Petrol sales for the half year, including Woolworths/Caltex Alliance sites, increased by 16.6 per cent from the previous corresponding period to $3.4bn.

Petrol volumes increased 2.5 per cent from the previous first half, with market share and customer numbers increasing.

The new Masters home improvement stores recorded a 16.4 per cent increase in sales to $412m.