It was to be expected that leading retailer, Woolworths would see slowing growth in 2009 after the breakneck rise in sales and earnings from 2006 and 2007 and that’s that the company forecast yesterday in its latest profit statement.
This slowing growth also explains why it was pushing so hard to takeover JB Hi-Fi, a deal which fell over at the last minute earlier this month, and why its trailing hints about an overseas corporate play (Not in new Zealand).
And the volatile market conditions and the reluctance of the credit crunch to go away have seen the company reverse a previous commitment to some sort of capital management this year, if an acquisition didn’t happen.
But it would seem that the company might be preparing to embark on another international deal as it made mention of its overseas interest.
There have been rumours that the company might be looking in the US.
The JB Hi-Fi deal didn’t happen and it looks like the attempt to buy The Warehouse in New Zealand is struggling. But while the company says it will monitor the situation, the mooted buyback looks like it won’t happen for while.
The retailer certainly has the firepower, although buying anything now as an economic slump deepens in some key markets, is fraught with danger.
Another solid year in 2008-09 will drive earnings and cash flow to the point where the market starts urging either a big deal, or capital management.
Although the retailer is expecting earnings and sales growth to slow, it still expects to see profits grow by more than 10% for the 10th year in a row, and expects earnings to once again outpace sales growth.
Woolies said yesterday it was expecting net earnings to rise by between 9% and 12% in the present year, less than half the 25.7% jump in 2008.
Sales growth would be in the "upper single digits,” the company forecast, compared to the 10.7% rise in top line sales (4.9% comparable store growth) to $47.29 billion for 2008.
A 10% rise in earnings would see them come in around $1.822 billion, compared with the $1.627 billion earned in the 53 weeks to June 29.
Chief Executive Officer Michael Luscombe told the market in a statement that "We have continued to refine our brand proposition with significant investment in price, merchandise range and quality during the year,” Luscombe said in the earnings statement. “This investment continues to deliver gains in market share.”
The 2009 forecast is based on a 52-week trading period after 53 weeks in the past fiscal year. Adjusted for a 52-week period in 2008, profit is expected to expand by between 11% and 14%.
Woolies’ shares eased 16 cents to $26.70 at the close yesterday after hitting a day’s low of $25.84.
The company will pay a total dividend for the year of 92 cents, up from 74 cents in 2007 with a final of 48 cents a share.
The group posted a 19.8% increase in EBIT to $2.5288 billion.
The Australian supermarket division grew EBIT by 18.8% and the New Zealand Supermarkets increased EBIT by 9.1%.
Food and liquor grew EBIT by 19.8% overall, but the petrol EBIT dropped by 1.2% as the company absorbed some of the sharp price rises in may-June.
The group’s general merchandise division, which includes Big W and consumer electronics in Australia, NZ and India, increased EBIT by 9.2%, while Hotels posted a 17.1% lift in EBIT, despite weaker sales caused by smoking bans and other restrictions.
"Australian food and liquor continues to perform well and BIG W, petrol and consumer electronics have had a good start to the new financial year.
"Hotels have experienced a pleasing improvement in gaming sales.
"New Zealand Supermarkets has experienced tight trading conditions as in the fourth quarter," it said.
The company said that given the current uncertainty in the debt and equity markets, it would defer any capital management activity at this time.
It said a share buyback would be assessed continually in the context of other initiatives and the capital market environment.
"Our current focus is to maintain a capital structure that will preserve our capital strength and give us the flexibility to pursue further growth opportunities.
"Our balance sheet, debt profile and strength of our credit ratings ensure we are very well placed for future growth both organically and through acquisition."
It said it was in the early stages of evaluating opportunities internationally.
"Any international expansion would have full oversight from the board, be undertaken in a prudent and disciplined fashion and meet the hurdles required for all our capital investment decisions," it said.
Besides NZ, the company has a small but growing operation in India.
"Our business venture with TATA is still in its infancy with 22 retail stores operating under the "Croma" brand. As part of this venture Woolworths Limited provides buying, wholesale, supply chain and general consulting services to TATA.
"The wholesale operations are meeting our expectations and recorded sales of $104 million (2007: $25 million) during the year and made an operating loss of $5.0 million (2007: $4.3 million)."
But that’s clearly too small for the sort of deals the company is supposedly eyeing.
Woolworths said its cost of doing business declined by 43 basis points (0.43%), and 38 basis points excluding one-off items.
And that saw its most important ratio, the so-called EBIT to Sales margin in its Australian supermarkets again rise to 5.52 cents in the dollar from the then impressive 5.16 cents in the dollar margin in 2007.
The Australian supermark
