Woolworths may miss profit forecast, says UBS

PRASHANT MEHRA
JANUARY 30, 2015
BUSINESS SPECTATOR
RESULTS for supermarket giant Woolworths will remain under pressure and guidance for 4 to 7 per cent net profit growth in the 2015 financial year is under question, UBS analysts have said.
UBS has forecast Woolworths (WOW) net profit will only grow 3 per cent in FY15 and reaffirmed its “sell” rating on the stock.
The investment bank said the results of its biannual supermarket supplier survey paint a worrying picture for Woolworths, with the retail giant recording its lowest overall score since the survey began in 2007.
The survey comprises of 34 participants who rated rate Woolworths food & liquor and Coles on a scale of one to 10, and the historical correlation of the survey with like-for-like sales is about 70 per cent, UBS said.
Woolworths’ scores fell in 24 of 26 categories, relative to the August survey, giving an overall score of 5.8.
On the other hand, Coles continued to improve with an overall score of 6.9 points.
Of most concern were the declines across Woolworths’ promotional programs, following the launch of its new ‘Cheap Cheap’ campaign, culture – scoring the lowest overall morale – and in-store execution, UBS analysts led by Ben Gilbert said.
UBS said the supplier feedback was consistent with its last survey — that Coles was winning the marketing war and was executing better in-store through “a better fresh offer and in store compliance”.
“Overall there was little new for Coles, with suppliers positive on the strategy and expecting strong momentum relative to Woolworths to continue in the near-medium term,” the report said.
Both Woolworths and Coles have been under pressure from German-owned supermarket giant Aldi, which last week reported its Australia sales reached $6 billion in 2014, growing 13 per cent in the year, or nearly three times faster than Coles and Woolworths.