It used to be soo easy for Woolies a few years ago. Customers would just roll up and spend at its supermarkets in Australia and NZ, buy booze at Dan Murphy’s, shop for homewares and clothing at Big W, and buy petrol at its petrol outlets/convenience stores, many of which were run with or supplied by Caltex.
Life was easy for the board and management. Then someone had the great idea about hardware and created Masters, try try and tackle Bunnings, which was the star performer at rival Wesfarmers.
And we now know how that all went – losses and write downs of more than $2 billion.
But while the board and management were tackling the Masters expansion, and then trying to right a sinking ship, they took their eye off the core supermarkets business, allowing them to lose ground to rival Coles and the faster growing super discounter, Aldi (not to mention with Metcash pecking away, as well as newcomer Costco from the US).
And when management and the board awoke to the damage they had done to the most important business in the group (and tried to find ways of halting the rot, as well as killing off Masters), the Big W department store developed a list, and then a big hole as sales disappeared and profits drained away (a bit like the way Target has become a millstone for Wesfarmers, but oddly not Kmart).
Masters was killed off last year as new management and chairman set about righting the ship at the supermarket business, which they gradually have managed to do to the point where it is outpointing a slowing Coles. But not before taking write-downs of $460 million.
But Big W is now the fire that Woolies management has to be put out and the ruins rebuilt. And the market’s view of this – caution with the shares off 0.4% to $29.94.
The 2016-17 results issued yesterday (https://www.woolworthsgroup.com.au/icms_docs/188796_woolworths-group-2017—appendix-4e.pdf) show the size of the task – losses at Big W blew out tenfold from $14.9 million in 2015-16 to $150 million in 2016-17.
Sales fell nearly 6% to $3.58 billion for the year as margins slumped under the weight of lower customer numbers, diccounting and investment back into the business to try and slow the rot.
Woolworths said that loss was disappointing and warned it did “not expect a reduction in losses” as it invested in improving Big W’s customer service and price competitiveness.
“The BIG W turnaround will be a multi‐year journey and while we hope to stabilise sales in FY18, we do not expect an improvement in trading performance due to the investment required to regain customer trust on price, improve our product o ering and enhance the customer shopping experience.,” directors said (fingers crossed?)
Woolworths announced a final dividend of 50 cents per share, bringing the full year dividend to 84 cents, up 9.1% on last year.
The group’s net profit before one-off costs and write-downs was $1.42 billion, down from $1.46 billion in 2015-16. Sales rose $3.7 billion to $55.4 billion in the year to June 30.
Woolworths’ Australian food division saw sales growth of 4.5% but earnings before interest and tax fell 2.4% as the company reinvested $1 billion in price competitive measures, store refubs and other moves..
Same-store supermarket sales grew 3.6% during the year, which was much better than Coles were supermarket revenues fell 0.1% and same store sales fell 1%.
Woolworths’ net profit jumped to $1.53 billion compared to a loss of $1.23 billion in 2016, when it booked $3.2 billion in impairments and costs related to Big W and killing off Masters.
Alcohol retailers Dan Murphy’s and BWS saw 4.3% sales growth and 3.9% of earnings growth (Now called Endeavour Drinks). Online sales were a highlight of the division, Woolworths said, with Dan Murphy’s online seeing 25% growth.
“We are moving from a turnaround phase, focused on fixing our business foundations, to a transformation phase, focused on leveraging team work, digital and insights to materially improve our business,” Woolworths CEO Brad Banducci said.
Wonderful management speak that doesn’t quite provide a measure of the task ahead of him and his team at Big W.
