Woolworths smacked by slowing salesAugust 26, 2002Australia’s...

Woolworths smacked by slowing sales
August 26, 2002
Australia’s largest supermarket chain Woolworths Limited (WOW) was hit in early trading despite posting a 22% rise in net profit to $523 million for the year to June 30 2002. Analysts said the result was a touch below their expectations and highlighted the high premium to market the stock has enjoyed.

According to Multex Global Estimates, analysts consensus forecasts were for a profit of $528.5 million. After adding the $40 million paid to holders of the Income Securities and the profit was up 18% to $563 million.

Earnings per share rose 25.1% to 50.2c and the final dividend was 33c per share compared to 27c last year.

The record result was driven by headline sales growth of 17% to $24.5 billion and 14.9% for 52 weeks on a normalised basis. However, comparative or like for like store sales were up a more modest 5.5% over the year.

The chairman of Woolworths, James Strong, said the results underlined the progress on cost savings made over the year as well as the benefits from its partial acquisition of Franklins.

“Over three years, the Company has reduced costs by $1,042 million, and passed 83% or $864 million on to its Australian customers, thereby improving Australian living standards,” he claimed in a release to the ASX.




By segment, the Supermarkets unit posted a 22.4% rise in EBIT +22.4% helped by the acquisition of 67 Franklins stores and rapid growth of the Petrol Plus network.

“The EBIT effect of these stores in the first partial year since acquisition was a little ahead of
expectations, in the region of $20 million contribution.”

At the Big W apparel chain EBIT rose 12.1% although the company said market conditions were “difficult”. One of Big W’s principle competitors is Coles Myer’s (CML) struggling Target division.

At the Dick Smith & Tandy divisions, Woolworths reported flat EBIT despite a 58% increase in sales. The company said the merger had encountered several major operational issues including weak management, rationalisation costs, and the generally weak computer and communications market.

Woolworths reported keen competition as Aldi from Germany, Pick ‘n Pay from South Africa and Metro from South Africa fought to improve their position. Despite this, the Australian company raised its market share in each state and at 30 June 2002 held a 28.3% share of the Food & Liquor market across the country.

“Woolworths believes that there is room in the Australian market for this number of players with their various niches and offerings.”

Looking forward, Woolworths’ main emphasis was on tight cost control, stating that the cost of doing business fell from 23.95% to 21.84% of sales over the past 3 years. It also said its Project Refresh Phase II was ready to begin, with $1 billion to spend over 5 years on improving its supply chain and IT infrastructure.

SHAW Stockbroking’s head of industrial research Mr Scott Marshall commented: “There were no real surprises in the result, NPAT +22% to $523 million.”

“The company has forecast high single digit sales growth and low double digit profit growth for the foreseeable future but we believe the sell-off is more related to the realisation that underlying growth is single digit while the stock holds a very high premium to the market."

"The stock is priced for perfection, and the market would also have been disappointed with problems within Consumer Electronics. On balance there is no change to the group profit outlook,” he added.

Woolworths is trading on a 2003/04 P/E of around 20 times compared to around 10 times for Foodland Associated (FOA) and 15 times for Metcash (MTT).

At 1041 AEST, Woolworths shares were trading 53c or 4% lower at $11.97.