Changes at the top, as Woolies’ disappointing performance continues

Beef Central, 17/06/2015

Woolworths chief executive officer Grant O’Brien will leave the company in coming months, in what appears to be a direct result of recent poor financial and trading performance across the nation’s largest retailer network.

wooliesWoolworths shares have fallen about 20pc in value over the past four months, as the current market headwinds caused by mounting challenges from largest competitor Coles, and rapidly emerging retail player Aldi impact on the company’s bottom line. Dismal performance by the company’s Masters big-box hardware chain is another factor.

A global executive search process including external and internal candidates will be conducted by the Woolworths board to appoint a new CEO, shareholders were told today.

Mr O’Brien has been CEO since October 2011, having worked for the company for 28 years.

At a recent investor briefing, the company set out strategies to grow its businesses over the next three years, telling shareholders it was “working hard to execute these plans.”

“However the recent performance has been disappointing and below expectations,” Mr O’Brien said. “I believe it is in the best interests of the company for new leadership to see these plans to fruition.”

Woolworths chairman Ralph Waters said while the board acknowledged that the company’s recent financial performance had been disappointing, it was committed to the plans and strategies outlined to shareholders earlier.

“Successful execution of these plans will be the basis for continued long-term value creation for our shareholders,” he said.

The company said it was now at its “most competitive position” on price since January 2014.

“Australian Food is on a three year journey to get customers to put us first consistently and our sales results will be volatile in the short term. It will take time for the improvements we have made to convert into sales momentum,” Mr Waters said.


Trading Update

Woolworths reported today that Australian food and liquor sales had remained disappointing for the fourth quarter to date, suggesting earnings before significant items this financial year would be broadly in line with the previous year.

The company also flagged 1200 job losses across support functions, supply chain and in non-customer facing store positions. The retrenchments are part of an anticipated  $500 million in cost savings across FY15 and FY16.

Shares in the company closed lower on the news, dropping 0.15pc to $26.80. Earlier this week they touched a three-year low of $26.56.

Woolworths had been anticipating profit growth of 1.8pc, but is now expecting a flat result on the back of weaker-than-expected sales and rising investment in its grocery division aimed at lowering prices and improving service.

The company said it now expects to deliver financial year 2015 net profit after tax before significant Items broadly in line with the prior year’s $2.45 billion. Including the impact of significant items, it expects full financial year net profit after tax to be around $2.15 billion.

Significant items are forecast at around $270m, according to the statement. These include business transformation costs of $180-$200m, redundancy costs connected with the 1200 job losses of $40-to $50m and property disposal costs of about $30-$40m.

Today’s news follows a disappointing half-year update in February when the retailer adjusted its profit forecast to 1.8pc, at the lower end of consensus forecasts.


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