The chances of a capital return for Woolworths shareholders in 2008 have dropped following a court decision that will allow the retailer to bid for The Warehouse Group, in competition with its Kiwi grocery rival, Foodstuffs.
Woolies management and chairman had made it clear at the Annual meeting earlier this month that if it couldn't expand through planned deals like a bid for The Warehouse group, it would look at capital management for shareholders next year.
Woolworths is now producing so much cash and has such high levels of franking credits that it could generate a significant capital return to shareholders or buyback.
But now that thinking is on the back burner after the decision of a NZ court yesterday.
Woolworths and Foodstuffs, appealed a decision by the NZ Commerce Commission, the competition regulator, which blocked them from increasing their current 10% in The Warehouse, which is New Zealand's largest publicly traded retailer.
The shares, which had fallen in recent months after the adverse Commerce Commission decision, surged, rising 23% at one stage, taking its market value close to $NZ$2 billion.
Warehouse attracted interest and mooted from the two companies in 2006 by revealing aggressive plans to expand into groceries at its large-format hypermarkets across NZ
The Warehouse has delayed the rollout of this initiative, citing lower-than-budgeted sales and higher-than-forecast start-up costs in its early store expansions and partial conversions.
Woolworths welcomed the news saying it continues to consider all opportunities to invest and develop its business in New Zealand.
Warehouse shares rose 25%, to $5.38, while Woolworths shares rose 91c to $32.93 as investors optimistically priced a successful bid into the price.
Brokers said the battle was back on and a bid sooner rather than later might emerge from one or both WOW and Foodstuffs.
The Tindall family still own 51% of Warehouse and any deal has to be done with them.
The Tindall interests, led by founder, Steve Tindall, had wanted to take Warehouse private to run its grocery/food push, so he teamed up with private equity group, Pacific Equity Partners.
That was frustrated by Woolies and Foodstuffs buying 10% stakes each to block his attempt.
Foodstuffs (it's a co-operative) said it was considering its options at this stage.
While both bought stakes to frustrate Tindall and force a backpedalling on food (which would compete directly against their core businesses), Woolies has also seen Warehouse as a way of adding a discount general merchandise business in NZ similar to its Big W chain in Australia.
Both groups though are likely to wait until reasons for the decision are released: they were withheld to allow parties to advise on material they want to remain confidential. Much of the hearing in the NZ High Court was in secret session because of the information on market share; pricing and other commercially sensitive material was being presented.
Shareholders in David Jones were told yesterday of ambitious plans for expansion and that the solid sales growth of the past 18 months was continuing into the important pre-Christmas season. Comparable store sales so far in November have continued to grow strongly through November and department store chain was trading a little better than its interim profit forecast.
And, CEO, Mark McInnes revealed plans for up to 10 new stores around Australia in coming years as private equity owned rival, Myer, also rolls out an aggressive expansion target.
He said that the next six to 12 months would see plans for five to 10 new stores announced.
DJs has already opened a new store in Burwood in Sydney and Chermside in Brisbane. It also closed two in the Sydney area at Bankstown and at Eastgardens. It has also refurbished its flagship store in Elizabeth Street in Sydney's CBD.
It has also upgraded stores in Brisbane and in suburban Melbourne and revealed plans for a multi-million dollar revamp and restructuring of its Melbourne CBD stores and property holdings.
Mr McInnes said the firm was in talks with landlords about opening new centres.
"We're very confident over the next six-to-12 months to be able to announce some of those," he said.
He said the number was in the 5 to 10 range: it would be as low as five or as high as 5-10, but in the range.
David Jones has previously said it had good like-for-like sales growth in the first quarter and Mr McInnes that had continued through November.
The retailer reconfirmed its guidance for the 2008 financial year, saying it still expects after tax earnings to grow between 8% to 13% in 2007/08, compared to the 2007 year's figure of $109.5 million.
"The market conditions we have experienced at the start of fiscal 2008 are in line with this forecast and we are well positioned to capitalise on the expected strong consumer sentiment throughout calendar 2008," Mr McInnes told the retailer's annual general meeting.
Mr McInnes said adding to the expected positive consumer sentiment, David Jones will have had a full year of trading from its new Burwood NSW and Chermside Queensland stores.
"We are on track to open our new flagship QueensPlaza store in the Brisbane CBD in early February 2008," he said.
"Our sales at the Burwood and Chermside stores since their opening have been outstanding and we look to leverage future opportunities due to the industry restructure, as they arise over time."
Mr McInnes said David Jones had five key sources of growth beyond 2008 — the launch of a David Jones-branded general purpose transaction card expected in 2009, securing new store locations in high value, high growth centres, implementing a strategic refurbishment program, implementing cost efficiency initiatives, and implementing gros
