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Woolies Gains Ground In Grocery War

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Woolies shareholders will share the solid lift in profit for the six months to December.

But the forecast of another multi million dollar loss for the company’s troubled BIG W department store chain will divert investor attention away form the recovery in its core supermarkets operations in Australia.

The country’s biggest retailer Friday morning reported a 14.7% jump in net profit for the first half thanks to continuing strong supermarket sales growth that again outstripped its rival Coles.

The company said net profit after tax grew to $902 million for the 27 weeks to December 31, compared to $786 million for the same period last year. Directors boosted interim divided by more than 26% to 43 cents a share.

Total food sales rose 4.9% to $19.3 billion for the half, with comparable sales growth - which strips out the impact of opening or closing stores - of a very solid 5% in the second quarter.

That put Woolies well ahead of Coles. Thanks to big write downs in the UK and on Target Wesfarmers’ reported a net profit down 86% at $212 million for the half year.

Excluding those significant items, Wesfarmers’ profit was still down 2.7% at $1.535 billion, with Coles profit falling 14.1% to $790 million as comparable food and liquor sales growth dropped to 0.9%, down from 1.3%.

Woolworths’ supermarket earnings before interest and tax grew 11.1%, with increased sales per square metre and and better stock controls.

“At the end of FY17, we said that we were moving from turnaround to transformation,” Woolworths’ chief executive Brad Banducci said in Friday’s statement to the ASX.

"In the current half we have seen some early signs of this transformation with good progress on anumber of strategic initiatives and pleasing sales growth from all of our businesses."

Including the impact of the businesses Woolworths has since sold or closed - the loss-making Masters Home Improvement chain, Home Timber and Hardware, and its petrol stations (which are not yet sold as BP struggles to get ACCC approval)- net profit grew 37.6% to $969 million. Amid all the good news was the continuing problems at BIG W. While the directors said things had improved, the size of the projected loss for 2017-18 was a surprise.

"BIG W’s sales performance improved in the half, albeit with more modest growth in the second quarter. 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.

"This together with planned customer investments and volume-driven cost increases has resulted in a small loss for the half ($10 million). While this continues to be a multi-year turnaround, we currently expect the BIG W loss for FY18 to be $80 - $120 million.

While that will be less than the $150 million loss for 2016-17, it is still higher than some estimates in the market. BIG W lost $15 million in 2015-16, so the losses by June this year for the three years could be as high as $280 million.

View More Articles By Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

At the AFR he was a finance writer, Finance Editor, News Editor and Chief of Staff. At the Nine Network he was supervising producer of Business Sunday for more than 16 years. He has also written for other online and analogue print publications here and overseas.



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