Woolworths posts $2.45b profit despite Masters, Big W weakness

Sue Mitchell
August 29, 2014
The Age

Woolworths raised grocery prices to offset widening losses in the Masters home improvement business. Photo: Glenn Hunt
Woolworths’ net profit rose 8.5 per cent to $2.45 billion in 2014 as higher food and liquor margins offset wider than expected losses from home improvement and weaker earnings at BIG W.
Underlying net profit growth of 6.1 per cent, adjusted to remove the impact of an extra week’s trading in 2013 and one-off items, was in line with Woolworths’ 5 to 7 per cent profit growth guidance. However, the net result fell slightly short of consensus forecasts around $2.46 billion.
Normalised earnings before interest and tax rose 5.3 per cent (normalised) to $3.78 billion – compared with market forecasts around $3.77 billion – underpinned by 7.2 per cent EBIT growth from Australian supermarkets, liquor stores and petrol outlets.

Woolworths revealed earlier in August that the Masters big-box stores lost $176 million in 2014 – $20 million more than in 2013 – taking losses in home improvement to $169 million from $139 million in 2013. Photo: Supplied
Analysts said food and liquor margins fattened in the second half, as petrol discounts subsidised by groceries were scaled back and Woolworths raised grocery prices to offset widening losses in the Masters home improvement business.
Australian food and liquor EBIT jumped 9.1 per cent to $3.28 billion on a 4.7 per cent rise in sales to $41.2 billion, with margins rising to 7.9 per cent from 7.6 per cent. Earnings from petrol fell 34 per cent to $89.3 million as petrol discounts previously funded by groceries were booked in the petrol division.
Same-store food and liquor sales rose 3.3 per cent in the fourth quarter, (2.5 per cent Easter adjusted), despite more challenging trading conditions and increased consumer caution, taking same-store sales growth for the year to 3 per cent.
Woolworths revealed earlier in August that the Masters big-box stores lost $176 million in 2014 – $20 million more than in 2013 – taking losses in home improvement to $169 million from $139 million in 2013.
Earnings from BIG W were also weaker than expected, falling 18.8 per cent to $152.9 million, while NZ supermarkets’ EBIT rose 17.1 per cent in $A terms to $271.4 million and 4.2 per cent in NZ currency.
EBIT from hotels rose 6.5 per cent on a normalised basis to $275.4 million.
Woolworths increased its final dividend by 1¢ to 72¢ a share, payable October 10, taking the full year distribution to $1.37.
Chief executive Grant O’Brien said the company was making progress against its key strategic priorities and forecast 4 to 7 per cent net profit growth this year.
“However, there is still work to do, particularly in general merchandise and home improvement,” he said.
Trading conditions were expected to remain challenging this year as consumers managed cost of living pressures in a time of economic uncertainty.
“The result demonstrates that the four strategic priorities we outlined three years ago are delivering strong, sustainable growth in established parts of the business,” Mr O’Brien said. “At the same time we are investing in opportunities to generate growth into the future.”
“Ongoing momentum achieved in 2014 was underpinned by growth in Australian Food, Liquor and Petrol as part of the first strategic priority to extend our leadership in food and liquor. We have increased comparable sales and EBIT growth in Australian food and liquor over the past three years, gaining further momentum in 2014FY14,” he said.
Woolworths had increased market share in food whilst delivering $750 million in value to customers through promotions and discounts, with average prices falling 3.1 per cent.
Liquor delivered strong growth across three formats – Dan Murphy’s, BWS and The Wine Quarter online and direct business.
Mr O’Brien said Woolworths had also delivered against another strategic priority – to build new growth businesses – with online sales growing more than 50 per cent to $1.2 billion.
Woolworths also continued to review its portfolio to maximise shareholder value and was currently considering the sale of a portfolio of freehold hotel sites, following up on the creation and sale of the SCA Property Group in 2012.
Mr O’Brien said the fall in EBIT at BIG W as disappointing, saying the result was hurt by the costs of a transformation program and challenging trading conditions. However, the integration of direct retailer EziBuy was progressing well.