Strong half-year profit for Woolies

Jon Condon, 01/03/2012

Despite the current dour merchandising battle with major rival, Coles, Woolworths has posted a solid half-year net profit after tax of 3.2 percent, the market was informed this morning.

Chief executive and managing director, Grant O’Brien, said Woolworths also recorded an increase in its trading result of 5.6pc before central overheads and the company’s recent investment in Home Improvement.

“This is a sound result in the period considering the headwinds faced by the whole retail sector with subdued consumer confidence and significant selling price deflation, and the significant investment we are making in the business in line with our strategic priorities for growth,” he said.

“Given prevailing macro-economic and market challenges, along with the growth and the change agenda we are driving through our business, this is a commendable result.”

Woolworths currently accounts for about 29 percent of all domestic retail beef sales, nationally, independent surveys show.

During the half-year, ended December 30, Woolworths served an additional 26.9 million customers, up 3.8pc, reflecting improved customer buying power through 'price investment and deflation.'

Sales from continuing operations grew by $1.4 billion or 5.2pc to $28.9b, with the company's supermarkets division recording volume and market share growth.

Gross margin as a percentage of sales for continuing operations increased 15 bps, reflecting the benefits of global direct sourcing, improved shrinkage rates, increasing sales of exclusive brand products and the success of new store formats.

“We have continued to re?invest in lower prices, delivering greater value to customers,” Mr O’Brien said.


Supermarkets strong performers

Australian Food (Supermarket) and Liquor division sales for the half'-year were $19.6b, an increase of $800m or 4.3pc over last year. Comparable store sales for the half-year increased 1.5pc (HY 2011: 2.2pc).

Sales growth was impacted by significant deflation particularly in produce, seafood, bakery and deli in the second quarter. Produce deflation was experienced in all months of the second quarter and by December had reached double-digit. Sales growth was also dampened in the second quarter (October-December) by cooler weather with the lowest December Australia-wide temperatures since 2001.

“Although the trading environment has remained tough, we increased market share, customer numbers, basket size and items sold. During the half year, Woolworths' supermarkets/liquor served on average 19.3 million customers per week,” Mr O’Brien said.

Despite the deflationary pressures, fresh food continued positive sales momentum, led by fresh meat, bakery and deli, and the company continued to record strong results from its new season launches.

Average prices continued to experience deflation for the half year of 3.7pc when the effects of promotions and volumes are included (HY 2011: 3.8pc deflation). Part of this deflation resulted from Woolworths lowering its prices to meet increasing customer demand for value.

Woolworths opened 25 new supermarkets during the half-year bringing the total to 864. Plans are afoot to open another 14 in the 2012 financial year.


MSA impacts ‘inventory days’ benchmark

Interestingly, Woolworths’ adoption of the Meat Standards Australia program was offered as one of the reasons for an increase in average 'inventory days' across the supermarket group, which increased by 0.3 days over the previous term.

The unusually high number of new stores opened in the half and the introduction of the MSA guidelines, with specific requirements for aging beef before sale, contributed to this increase, today's financial announcement said.

While Woolworths MSA program did not activate until early January, the aging requirement for that beef extended back into inventory management before the end of the second quarter, ending December 30.

The statistics would suggest that Woolworths is now aging beef longer than it did before the implementation of MSA.

Looking at prospects for the trading year ahead, Mr O’Brien said Woolworths anticipated trading would continue to be subdued over the remainder of the year, as a result of the prevailing external conditions.

  • Woolworths has now launched its advertising/awareness campaign for its MSA program, using TV and print ads featuring national livestock manager Brett Thompson and a supplier talking about the 'failsafe' attractions of MSA in delivering tenderness, juiciness and flavour in beef purchasing.   


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