luscombe stands by woolies profit target.

Luscombe stands by Woolies profit target.
Blair Speedy From: The Australian February 28, 2011.

WOOLWORTHS chief executive Michael Luscombe has dismissed suggestions the company has entered a new period of lower growth as a result of increasing competition from rival supermarket chain Coles.
Woolies last week reported a 6 per cent rise in net profit for the first half of the financial year, its slowest pace of growth in 12 years and less than a quarter of the 28 per cent profit growth seen in the first halves of the 2006-07 and 2007-08 financial years.

But Mr Luscombe said the company was not easing off on its plans for earnings growth.

"Our long-term targets that we've set for ourselves -- that's sales up to single digits assisted by bolt-on acquisitions and our corresponding EBIT growth -- remain unchanged," he said in an interview on ABC's Inside Business.

"This is a long-term game . . . over the last five years in particular, we've really built up a substantial business, (from) circa $30 billion to $50bn, or in excess of that this year, and the bigger you get obviously the harder those incremental targets get.

"But we haven't changed our internal targets, and while this past half has been pretty challenging, particularly for discretionary retailers, we're not changing our aims for the future; that's just not the way at Woolworths."

Mr Luscombe said the intensified competition between the grocery giants was not new, with a longstanding rivalry between the two players.

"It's been game on for the last 80 years. Coles is obviously older than Woolies. We're 87 years old; they're a little bit older than that. There's been game on ever since we opened a store in the same town.

"Well, I've been around retailing for 30 years and things are always either a little bit quiet or they get a little bit noisy. At the moment we've got a bit of noise happening, and I enjoy the noise because it makes life a lot more interesting."

The divisions most sensitive to discretionary spending, Woolworths' Big W discount department store chain and its Dick Smith consumer electronics business, were the hardest hit during the first half, reporting declines of 17 per cent and 42 per cent in pre-tax earnings respectively.

Woolies last week confirmed forecasts for full-year net profit after tax to be 5-8 per cent higher than last year, after last month downgrading its previous guidance for NPAT growth of 8-11 per cent.

Deutsche Bank analysts Alexi Baker-McLennan and Paul van Meurs said maintenance of the revised forecast was an "implicit upgrade" given a number of one-off expenses such as the impact of the Queensland floods that would otherwise have been expected to cut into the bottom line.

However, Deutsche also noted that Mr Luscombe's comments about maintaining price leadership in the supermarket sector increased the risk that expected rises in food prices would not be passed on to customers, thereby cutting margins.

Woolworths cut its shelf prices by an average of 3.8 per cent in the December quarter, including the impact of promotional specials, while Coles trimmed its prices by 0.2 per cent.