Woolworths’ Countdown supermarket chain in New Zealand had a 1.4 per cent decline in annual profit despite margins rising, with dairy and fresh produce costing more along with uninsured losses related to the November 2016 earthquake.
Earnings before interest and tax fell to $309 million in the year to June 30, from $313.9m in the previous year, its ASX-listed parent company Woolworths announced.
Sales were $6.23 billion versus $6.1b in the prior corresponding period, up 2.1 per cent.
The supermarkets’ own food price index showed deflation of 0.4 per cent over the year, driven by a return to inflation in dairy and price fluctuations for fresh fruit and vegetables.
It said the cost of doing business or CODB increased 60 basis points because of staff expenses and logistics costs from the Kaikoura earthquake
Countdown lifted gross margin 42 basis points to 24 per cent, which it said was due to reduced stock loss through store security and ranging initiatives, changes in fuel discount promotions and fewer low-margin bulk gift card sales.
The company said its online business had “double digit” growth in 2017.
Woolworths reported total group earnings before interest and tax of A$2.64b and a net profit of A$1.53b, up 224 per cent.
Last year it reported its first loss in 23 years after taking A$1.9b in write-downs on the Masters home improvement business.
The ASX-listed shares last traded at A$27.06, up 12.3 per cent this year.
Big W continues to decline
But Woolworths’ discount department store Big W has continued to perform poorly, with a pre-tax earnings loss of $150.5 million and another 5.8 per cent fall in sales.
“Woolworth’s struggling Big W continued to maintain difficulties in establishing themselves in the highly competitive discount department stores market,” said Hianyang Chan, senior research analyst at Euromonitor International.
Chan said similarly to discount department store rival, Wesfarmers-owned Target, Big W is in the midst of a transformation plan by reviewing its strategy plan and customer value proposition in an attempt to remain competitive.
“Comparable sales remained in decline and the retailer struggled to define itself and has fallen out of favour in recent years,” he said.
“The imminent entry of Amazon into Australia will post further threats to most major retailers and Big W will be no exception. It is expected that the parent company will aim to further strategise on how to better retain and expand their consumer base by better omni-channel offering, wider, better priced and a more localised product range, better customer service and most importantly, introducing a flexible, faster and cheaper same-day delivery service.”
The Woolworths board announced a final dividend of 50 cents per share taking the total dividend for the year to 84 cents, a 9.1 per cent increase on the prior year.
