It was rare in this corporate reporting season to hear a CEO reaffirm earnings guidance, not downgrade it.
The global financial crunch and slowdown has hit a growing number of types of companies, from the large like banks, to the smallest miners and explorers.
As we have heard this week, retailers have been hit like Harvey Norman, David Jones and Just Group, which is now part of Premier Investments.
Retailing is feeling the brunt of the slowdown,higher interest rates and petrol prices.
It’s tough.Just ask gerry Harvey of Harvey Norman, or the management at David Jones.
So it was a welcome event to hear Woolworths management again reaffirm the year’s profit guidance set when the company reported its 2008 final result in August and reconfirmed last month when first quarter sales figures were issued.
But while Woolworths reaffirmed its guidance for 2009, it has deferred any capital management activity at this time because of the economic and financial uncertainty.
The retailing giant had previously said that if it did not make a major acquisition it could return capital to shareholders in calendar 2008.
It has around $800 million in cash to return, but the smartest way to do that is to borrow (its tax effective) and then for the company to pay off that debt.
Not even Woolies can get short term loans of that size at economic rates these days.
So it’s now time to be prudent, according to chairman, James Strong.
"Whilst capital management remains an important issue, given the current world economic circumstances, it is considered more prudent to defer any capital management activity at this time," chairman James Strong told shareholders at the company’s annual general meeting in Melbourne.
Mr Strong said Woolworths maintained its objective to preserve capital to give it flexibility to pursue growth opportunities, both organically or by acquisition.
"There is continuing potential to increase market share in all Woolworths businesses in both Australia and New Zealand and the company’s balance sheet, debt profile and strength of credit ratings ensure it is well placed for future growth," he added.
He said Woolies would continue investing in the coming year.
It had plans to spend nearly $2 billion in refurbishing 350 stores as part of several projects to upgrade the supermarkets, Big W and other businesses.
Some of this would also be spent on new supermarkets, Big W and other outlets.
Refurbishing though gives more bang for the buck because it boosts same store sales growth (a major comparison method for analysts and others examining retailing performance).
Since the stores remain open during the changes, they are counted in the same store measurements, and refurbished stores always generate higher sales in the first couple of years after the upgrade.
Chief executive Michael Luscombe told shareholders the company’s guidance for the fiscal 2009 year was unchanged with a forecast still current for annual sales growth in the upper single digits, earnings before interest and tax to grow faster than sales and net profit to grow by between 9% and 12% (on a 52 vs. 53 week actual comparison).
Adjusted to a 52 week comparison in both cases he said the guidance was still 11% to 14% growth in EBIT.
Mr Luscombe was upbeat about Australia’s economic prospects, despite concerns the country may face a recession next year due to slowing world growth.
"The media has been quick to seize the prophecies of doom and there has been no shortage of self-appointed prophets only too willing to talk down the Australian economy," Mr Luscombe said.
"But I am not one of them," he told shareholders.
He said Australia is experiencing challenging times but many countries around the world have been hit harder and may not yet have reached "the bottom of the curve".
Retailers in Australia are being affected. Many retailers are seeing a material slowdown in sales and will be taking a deep breath as they head into the crucial Christmas trading period.
"Although this year, that breath might be deeper than usual, I believe the government’s stimulus package, the interest rate cuts and falling petrol prices will all contribute to a general underpinning of the Christmas trading season," he said.
In those comments he was at one with Premier boss, Solomon Lew who strongly supported the rate cuts and the government’s $10.4 billion spending package which kicks off the week after next.
Woolworths shares rose 30c to $25.40 yesterday.
But the sorriest story in property and retailing remains the Centro twins. Centro Retail Group security holders had their AGM in Melbourne yesterday, Centro Properties’ holders meet today.
It’s been a year from hell: in fact it was 11 and a half months ago that the companies’ managements started realising they were in trouble when they found it increasingly difficult to rollover more than $A1 billion in debt in the USA.
They had to fess up to problems around December 13/14, and then the following Monday, December 17, had to tell the market that they couldn’t refinance.
That’s when the credit crunch really hit Australia: Allco, MFS, Babcock & Brown and the rest of the cast of highly indebted players and Macquarie Bank wannabees (and Macquarie itself) plunged, with the damage growing in January.
Yesterday the security
