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Woolworths’ half-year profit sky rockets

BanducciWoolworths released its report on the supermarket giant’s half-year profit of $725.3 million. Heavy grocery discounting shows its attracting more consumers.

Woolworths’ food sales, which removes one-off events, grew 3.1 per cent in the second quarter and 1.9 per cent for the six months to January 1.

Chief executive Brad Banducci said the number of transactions and items per basket has shown that the group’s strategy is working well.

“Sales momentum improved over the half for Australian Food with comparable sales in December the strongest for the year driven by strong comparable transaction growth and an improvement in items per basket,” said Banducci.

He said EBIT declined 13.9 per cent on last year primarily after it was affected by the reinstatement of team incentive payments; team training and higher depreciation of their renewal and IT investments.

“This momentum gives us confidence that, while we still have a lot to do, we are on the right track. Endeavour Drinks Group (EDG), New Zealand Food and ALH Hotels also all delivered solid sales growth in the second quarter,” elaborated Banducci.

“The Board remains committed to disciplined capital management and a solid investment grade credit rating. I am pleased to report that the strong cash conversion achieved during the first half has contributed to a significant reduction in net debt compared to the prior year with the sale of the fuel business to further strengthen our balance sheet once completed,” Gordon Cairns, Woolworths chairman said.

“The Board has announced an interim dividend of 34 cents per share, a 22.7 per cent decrease on the prior year with the interim payout ratio consistent with prior periods. A 1.5 per cent discount will continue to be offered on the Dividend Reinvestment Plan (DRP),” said Cairns.

Banducci further commented on Woolworths’ partnership with BP. He said once the Fuel, Convenience and Rewards deal with BP is completed, their “customers will have more fuel redemption options and increased ability to earn Woolworths Rewards points and we will have an opportunity to partner with BP in rolling out a new Metro@BP concept.”

According to the supermarket giant’s boss, the Woolworths Group Corporate Responsibility Strategy 2020 was met by the supermarket giant. Recent reports showed a progress with the team, about 35 per cent; an increase in Voice of Team (VOT) scores, particularly the ‘would you recommend Woolworths as a place to shop’ and the company addressing the gender pay gap.

“Endeavour Drinks Group delivered sales growth of 4 per cent for the half in a very competitive market. All retail formats delivered positive comparable sales growth with strong double digit growth from Dan Murphy’s online. Good cost control, despite the price investment, resulted in a 3.1 per cent increase in EBIT for the half,” said Banducci.

“While we expect trading conditions to remain competitive for the remainder of FY17, we are focused on building the sales momentum we have achieved over the last six months as we work to restore sustainable growth in Australian food. We note, however, that the second half will also be a period of continued investment in improving the store experience, depreciation from our renewal and IT investments and higher team incentive payments,” Banducci further commented.

According to IBISWorld research, Woolworths’ profit is expected to be boosted as the supermarket giant prioritises its grocery business and pricing based on its competitors. Its main competitor Wesfarmers recently announced a drop in both revenue and profit for Coles.

“Woolworths sold its languishing hardware division in 2016 and announced an agreement to sell its fuel business to BP in December 2016. These factors have highlighted the company’s renewed commitment to its core supermarkets business,” said IBISWorld senior industry analyst Nathan Cloutman.

The research group said this strategy may lift Woolworths’ competitiveness over the next five years. Intense price competition between the major players Woolworths and Coles has characterised the supermarkets industry over the past five years, but evidence suggests this trend appears to be easing. Grocery prices have increased slightly in 2017 and prices are expected to remain stable, or rise slightly higher over the rest of the year.

“Price reductions have negatively affected profit margins and supplier satisfaction at a time when challengers to the traditional players, including Costco and Aldi, have also increased pressure on Woolworths and Wesfarmers. As a result, further price reductions have become less viable for the major two players,” said Cloutman.

IBISWorld further commented that the higher grocery prices are expected to contribute to increased revenue for the supermarkets industry with forecasts suggesting growth of 3.3 per cent over 2016-17.

The supermarket giant also recently announced the appointment of a new chief information officer, Chief People Officer and Managing Director, Woolworths Supermarkets.

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