Woolworths, the country’s most successful retailer, confirmed yesterday that it had not been able to withstand the quadruple impact of weak consumer spending, the stronger dollar, the poor weather (floods and heavy rain) in the closing three months of 2010, the Christchurch earthquake last September and increased competition from rival Coles.
As a result Australia’s largest supermarket chain cut its interim and full-year 2011 net profit growth guidance after the uncertainty about current economic conditions heightened in the quarter, especially with the Australian floods and the impact of the New Zealand earthquake.
Growth in full year earnings is now put at 5% to 8%. The new full year guidance for earnings growth is down from the 8 to 11% previously given.
In other words, the retail giant could see earnings growth for the year halve, but remain positive.
Analysts say full year profit could be down $100 million on what was originally forecast, meaning the gain could be around the same figure.
It was the first time since 1996 that a profit downgrade has been made by the company.
Woolworths also said its first half net profit will now increase by between 5% to 6%, and earnings per share (EPS) will rise by between 6 and 7%, the company said in yesterday’s statement.
The shares fell $26.66, 82c to a low of $26.65 in early trading (a fall of 3%), before regaining some of that to end off 2.6%, or 71c at $26.76.
Woolworths, which also owns the discounter Big W and electronics chains Dick Smith and Tandy, reported a 4% rise in total first half sales (a 3.8% rise to $25.3 billion excluding petrol).
The company’s food and liquor sales in Australia rose 3.7% to $9.5 billion in the second quarter, with sales on a comparable store basis up 2.5%, slightly better than the first quarter.
Grocery sales at the retailer’s rose 3.5% to NZ$1.4 billion on new store formats and improved stocking of shelf inventory.
Consumer electronics sales in Australia rose 3.4% in the quarter, but slumped by nearly 6% in New Zealand.
Big W discount department store chain posted an 2.9% fall in sales thanks to lower spending (compared to the stimulus boost a year earlier) and the impact of colder and wetter weather during the peak Christmas sales season.
Woolies said that the "uncertainty, together with incurring costs, not covered by insurance, associated with the NZ earthquakes and the Australian floods has resulted in Woolworths amending its full year guidance to Net Profit After Tax Growth for the full year is now expected to be in the range of 5% to 8% and EPS growth for the full year of 6% to 9%.
Woolworths said first half financial results will be announced on Friday February 25.
"Solid performances in Food and Liquor, Petrol, New Zealand Supermarkets and Hotels, which met our expectations, were offset by weaker than expected results in BIG W and Consumer Electronics," the company said.
"The half year result is subject to finalisation, verification and external audit of the financial statements.
"Given the experience of the recent 6 months a degree of uncertainty exists over the next 6 months trading. The market is expected to remain competitive with a less confident consumer who is spending less whilst having a greater propensity to save.
"This combined with the uncertainty around the level of inflation going forward, the risks of future interest rate rises, and a continuing strong dollar provides a platform for a potentially subdued trading environment particularly in the discretionary sectors.
"In Australia, consumer spending has tightened with the absence of flow on effects of the Australian government stimulus experienced in the prior year, with increased individual savings levels, four interest rate increases, including the unexpected November increase and sharp increases in utility costs.
"Deflation in average Food and Liquor prices has continued while significant deflation in key categories of general merchandise has been intensified by a strong Australian dollar.
"Overlaying these economic conditions is unseasonably poor weather in Australia in the last quarter curtailing summer spending in December," CEO Michael Luscombe said.
