Woolworths falls well short of Coles’ strong financial year result

Beef Central, 29/08/2015

WOOLWORTHS’ supermarkets division fell well short of earlier financial results posted by major rival Coles for the calendar year ended June 30, the market was informed on Friday afternoon.

Woolworths’ core food and liquor business lifted total sales 2.3 percent for the year, while comparable sales (stores open at least 12 months, allowing direct comparisons) were up just 0.7pc. Fourth quarter sales were particularly disappointing, with Easter-adjusted comparable sales declining by 0.9pc.

wooliesBy comparison, Coles last week reported a 5.3pc rise in full-year total sales and a 3.9pc lift in comparable sales for the same period.

Woolies food and liquor pre-tax earnings last year reached $3.44 billion, 2.1pc higher year-on-year.

Across all its retail divisions (also including Big W, Masters hardware, ALH Hotels etc) Woolworths on Friday reported a net profit of $2.146 billion for the fiscal year, a 12.5pc decline on the previous year.

Chief executive Grant O’Brien said Woolworths had delivered sales and profit in line with the previous year before one-off items, though below its own expectations in the full-year.

The slide in full year profit comes as the company’s supermarket sector faces tough competition from arch-rival Coles and German newcomer, Aldi.

The company spent $200 million on improving its supermarkets during the second half of the year, including lowering prices and improving the quality of its products.

“Woolworths’ financial performance is largely determined by its Australian food, liquor and petrol business, which in FY15 delivered an increase in earnings before interest and tax of 2.1pc on the prior year, reflecting subdued sales growth in the second half,” Mr O’Brien said.

“The market environment has changed dramatically with stronger competition and significant shifts in customers shopping behaviour,” he said.

In May, Woolworths unveiled a three-year strategy to jump-start its food and liquor business, which it said was delivering some results already, such as improved availability and customer service and a better fruit and vegetable offer. However the retailer conceded it would be a considerable time before the full benefits of the strategy are realised.

“While Australian food and liquor comparable sales in July and August declined 0.9pc for the first eight weeks of the year, we are confident that our investment will lead to improved sales momentum,” Food Group managing director Brad Banducci said.

“However, given the scale and timing of the changes we are making, we expect it will take time for sales to respond to our initiatives.”

“We are resetting our food business to ensure a sustainable competitive position and maintain strong returns to shareholders,” Mr Banducci said. “We enjoy significant advantages in scale, network, supply chain and a proven ability to extract operating efficiencies. However, a more competitive environment will result in lower margins as we invest to improve all aspects of the customer experience, notwithstanding gathering momentum in operating efficiencies.”

Woolworths highlighted its online sales as a bright spot, delivering a 15.6pc increase to $1.42 billion in sales in fiscal 2015, across food, liquor and general merchandise.

“There is an intense focus on restoring Woolworths to a sustainable growth path. I am convinced that shareholders will be rewarded and our decisions will result in a better and stronger company,” Woolworths chairman, Ralph Waters said.


Comprehensive management overhaul

Woolworths is currently in the middle of a comprehensive overhaul of its senior management, after chief executive Grant O’Brien in June flagged his exit from the company, on the back of ongoing disappointing sales results in the key Australian food and liquor division.

The company flagged about 1200 job losses across support functions, supply chain and in non-customer facing store positions.

Mr O’Brien is remaining in the CEO role while a global search for a replacement takes place, with the company saying both internal and external candidates will be assessed.

Woolworths chairman Ralph Waters also steps down tomorrow, September 1, to be replaced by former Lion Nathan chief executive Gordon Cairns.




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