We had contrasting profit reports today from two of the major retailers in the country – in differing sectors – Woolworths (WOW) and Harvey Norman (HVN).
Woolies showed us that it has very much gone ex growth, with a weak interim (despite a higher dividend) and a cut to full year forecasts – just as the share price has been telling us now for months and months.
Harvey Norman on the other hand produced a near 25% jump in earnings.
As a result, Woolies share were trashed by investors, Harvey Norman shares rose.
In fact Woolies shares fell 10% and more at one stage in early trading and by 11am, were still down 8.8% at $30.95. That was 15% down from the alltime high of $38.92 reached last April.
Since then it has been a slow slide downhill as investors grew increasingly concerned about costs, the losses in the hardware business and a feeling management wasn’t performing. Not helping has been the consumer unease and lack of confidence, especially in the wake of the federal Budget last May.
WOW vs XJO 1Y – Woolies shares under pressure
Woolworths, the country’s premier retailer, choose today, the final day of the December half year reporting season, to reveal its 4th quarter, first half sales and profits figures.
Woolies has reported its results in the last weeks of the reporting season for a few years now, so it is probably something of a coincidence of timing, but we have come to expect bad news on the last day of the reporting season.
And Woolies didn’t disappoint with a surprise 3% drop in profit after one off items, a weakish underlying performance and management shake up is a bit of a shocker. It was the worst since the last half of 2011 when earnings dropped 17%.
As a result of the weak first half performance, Woolies management cut its full year profit growth estimate to around 1.8%, compared to the previous target of a 4% to 7% range.
Profit for half year fell to $1.208 billion after one off items. Underlying net profit, (before taking into account $148 million of restructuring charges in the Big W general merchandise chain), rose 4.7% to $1.38 billion, and earnings before interest and tax before one-off costs rose 4% to $2.12 billion as sales rose 1.9% to $32.68 billion.
All that was weaker than the performance at rival Coles announced last week. As a result of this weak performance, Woolies board made some senior management changes – the head of supermarkets, Tjeerd Jegen, has gone, to be replaced by booze boss, Brad Banducci, and Dave Chambers, who currently runs its New Zealand supermarkets, has been appointed director of Woolworths supermarkets, reporting to Mr Banducci.
Interim dividend was lifted to 67 cents a share from 65 cents.
And those first half losses in the underperforming Hardware business jumped to $103.2 million from $64.4 million because of rising losses from the Masters hardware start up which lost $112 million ($71.9 million).
But for Harvey Norman a different story as it continues to tap into the housing boom (as Fantastic Furniture showed this week as well).
After a very strong December half, Harvey Norman is now heading for a second year of double-digit profit growth.
First half profits jumped 27% to $141.9 million for the six months to December.
Revenue rose to $839.3 million in the latest half year, up from $777 million previously.
Group earnings before interest tax depreciation and amortisation were up 17.7% to $256.2 million, driven by a 44% jump in franchise profits as Harvey Norman cut back on expensive tactical support for franchisees, such as rent relief and marketing.
Harvey Norman boosted interim dividend 50% to 9 cents ma share, from 6 cents previously.
According to chairman Gerry Harvey, the strong housing market in Australia, record low interest rates and major infrastructure investment in NSW and stable consumer sentiment were pointing to positive trends.
“In Australia, our stores are benefiting from improved consumer confidence on the back of strong equity markets and strong growth in the housing market,” Mr Harvey said in today’s statement
Mr Harvey said the strength of the company’s online strategy and the benefits of the integrated Harvey Norman system helped the result.
"Our business has shown positive momentum for some time now, and it’s great to see improved segment performances in the half year," he said.
Harvey Norman shares rose 1.7% to $4.24 at 11am.
