Woolworths books almost 15 per cent profit rise

Brad-Banducci-WoolworthsCEO

Banducci says progress on the company’s turnaround has been made

Woolworths Group’s half-year net profit from continuing operations has increased by 14.8 per cent to $902 million, underpinned by momentum in Australian food sales, which increased by 4.9 per cent.

Woolworths Group’s sales increased by 3.8 per cent to $2.9 billion for the six-months ended 31 December, driven by top-line growth from all its divisions.

Earnings before interest and tax (EBIT) increased by 9.9 per cent to $1.4 billion on the back of an 11.1 per cent increase in Australian food earnings to $901 million, which offset a 64.4 per cent earnings decline from BIGW to -$10 million.

Woolies’ Australian food division booked comparable sales growth of 4.9 per cent on $19.3 billion in top-line revenue, more than double the food comps booked by rival Coles’ on Wednesday for the first-half.

Woolworths’ supermarkets momentum accelerated in the second-quarter, with sales growing 5.1 per cent and comparable growth of 5 per cent.

Woolworths Group CEO Brad Banducci said the group was showing early signs that the shift from turnaround to transformation was yielding good progress on strategic initiatives.

“EBIT increased by 11.1 per cent due to strong sales and continued improvement in stock loss despite investment in key strategic initiatives such as digital, incremental team training and IT as well as higher depreciation costs,” he said.

However, speaking to reporters on Friday morning, Banducci warned that as Australian food cycles its turnaround in the 2H, growth will likely moderate.

He said that comparable growth in the first seven-weeks of the new year had slowed to 3.7 per cent, impacted by the timing of New Year’s Day.

Across the group, Endeavor Drinks booked a 2.5 per cent increase in EBIT to $310 million on a 4.8 per cent increase in sales to $4.5 billion, with Dan Murphy’s and BWS experiencing strong sales growth.

Trouble child Big W’s sales were up 1.1 per cent to $2.03 billion, as efforts to lower prices and improve the discount-department store’s offer began to bear fruit.

NZ Food’s EBIT was down 7.7 per cent to $150 million, but top-line sales were up 3.6 per cent and comparable sales were up 3.3 per cent as work to turnaround the Countdown business with investment in team, produce and digital began to pay off.

ALH hotels saw EBIT increase by 17.1 per cent to $163 million, while sales were up 4 per cent to $861 million.

Discontinued operations contributed $122 million in EBIT, with petrol bringing in a 5.1 per cent increase in sales to $2.4 billion as it stands in limbo over a possible acquisition by BP that the ACCC has knocked back.

Group net profit including discontinued operations increased by 37.6 per cent to $969 million.

Woolworths gains steam moving into second-half

Worryingly for Coles after managing director John Durkan signalled an improvement in trading in the 2H, it appears Woolworths has moved into the New Year with even more momentum.

Woolworths Supermarkets voice-of-customer scores were 84 per cent in December, with customer transaction growth increasing by 5.3 per cent in the half.

Gross margins also increased slightly in Australian food, up 55 basis points to 28.8 per cent, although its cost-of-doing business increased by 29 basis points to 24.2 per cent.

Banducci said that the Australian grocery market remains competitive, but outlined his belief that it is still largely rational.

“Price is important to our customers, and we’re acutely aware of that,” Banducci said.

We’re continuing to invest in price all the time at the moment and you can see that in the deflation numbers we reported.”

Woolworths’ average prices decreased by 2 per cent in the first-half, although deflation eased in the second-half to 1.6 per cent.

Digital unit WoolworthsX oversaw the roll-out of in-store pickup to 1,000 locations in the half, contributing to strong online growth.

Woolworths supermarkets’ renewal program also progressed during the half, with 146 upgrades now completed since the program launched 18 months ago.

134 less intensive upgrades have also been completed.

More work to do at Big W

Despite an increase in sales at Big W, Woolworths said on Friday morning that there’s still “a long way to go” to turnaround the discount department store.

“A focus on lowering prices for our customers has driven higher volumes but at a lower average selling price with gross profit dollars largely unchanged,” Banducci said.

“This together with planned customer investments and volume-driven cost increases has resulted in a small loss for the half [EBIT down $10 million].”

Woolworths said it expects BIGW to book an EBIT loss of between $80 – $120 million in FY18.

Endeavor drinks earnings impacted

Banducci said that while Dan Murphy’s and BWS “outgrew the market”, with particularly strong sales in December, earnings growth was constrained by price investment to match competitors, as Wesfarmers’ continues its efforts to transform its liquor business.

Woolworths said that BWS, Dan Murphy’s and Langton’s booked “high double digit” online sales growth in the half, with more than 300 BWS stores now offering express and scheduled delivery from stores.

Management said there’s more work to do to meet increasing demand for convenience from customers within the division.

NZ food transformation underway

Woolworths invested in 37 renewals and 35 store upgrades across the pond during the first-half, part of its plan to turnaround the struggling Countdown business.

Its customer first ranging plan is now completed in around three-quarters of long-line categories, with its private label refresh now “largely completed”.

Further price investment is planned in New Zealand in the second-half, reflecting “more work to do to deliver a consistently good customer experience in all stores and days of the week, especially in fresh”.

Commenting on the results, Hianyang Chan, senior research analyst at Euromonitor International said Woolies’ key priorities in the previous financial year were to generate sustainable performances in its food business, evolve their drinks business, revitalise their department store and create a leaner and more customer-focused operating model.

He said the food division’s transformation strategy includes improving in-store format, offering competitive prices with improved product range availability and continuing the rebranding of private label products, which have showed success and it is expected that they will continue to further focus on what the customer are after and provide a superior offline and online shopping experience.

“Phantom or exclusive brands gained wide spread acceptance and are expected to continue to do so. It is expected that the supermarket giant will increase efforts to further improve on product ranges and rebranding efforts,” he said.

Euromonitor forecasts the retail industry within Australia will encounter significant growth of at least 5.1 per cent year-on-year.

More to come…

 

 

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