Woolworths cuts dividend after profits fall 17 pct to $786 mln

Sue Mitchell
February 22, 2017

Woolworths has slashed its interim dividend by 10¢ after net profits from continuing operations fell 16.7 per cent to $785.7 million in the December-half.

The retailer’s $1 billion investment into reducing prices and improving service boosted same-store supermarket sales in Australia but sent margins crashing to the lowest levels for more than ten years.

Group earnings before interest and tax slumped 14.5 per cent to $1.3 billion – falling short of market forecasts around $1.39 billion – dragged down by a  14 per cent drop in earnings from Australian supermarkets to $811.6 million.

Woolworths is estimated to have invested $300 million into reducing grocery prices and boosting service in supermarkets in the December-half to regain market share from Coles, Aldi and Metcash’s IGA stores, taking its cumulative investment over the last 18 months to $1 billion.

The investment reversed an 18-month slide in same-store supermarket sales. Like-for-like sales rose 0.7 per cent gain in the September quarter and 3.1 per cent in the December quarter, lifting same-store sales for the December half by 1.9 per cent.

Woolworths’ same-store sales growth in the three months ending December beat that at Coles for the first time since the fourth quarter of 2009.

However, the investment in price and the resumption of about $100 million in bonuses for store managers came at the expense of margins, which fell from 5.2 per cent to 4.3 per cent, the lowest level since 2004.

Coles dragged forward price investments in the December-half, ploughing an estimated $50 million into shelf prices and promotions. As a result, Coles’ food, liquor and convenience earnings fell 6.8 per cent in the half as same-store food sales growth slowed from 5.3 per cent to 1 per cent. 

Analysts expect similar like-for-like sales growth in Woolworths’ Australian supermarkets in the June-half, suggesting that margins may have bottomed after falling almost 400 basis points in two years, from 8 per cent in 2015 (including liquor) to 4.3 per cent.

Woolworths’ net profit result compared with forecasts between $809 million and $902 million, although it is unclear whether these estimates included petrol and convenience, which were listed as discontinued operations.

Woolworths classified its 527 petrol stations and convenience stores as discontinued operations after reaching agreement before Christmas to sell the business to BP for $1.78 billion, conditional on regulatory approvals, which are expected to take until January 2018.

Group net profit was $738.1 million compared with a loss of $2.1 billion in the first-half of 2016, when Woolworths wrote down the value of its Masters business by $2 billion.

Woolworths cut its interim dividend by 10¢ to 34¢ a share, payable April1. 

Read more: http://www.afr.com/business/retail/woolworths-cuts-dividend-after-profits-fall-17-pct-to-786-mln-20170220-guh6cs#ixzz4ZMRGvG3j

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