Just as we were recognising Dick Smith’s (DSH) effort on Wednesday to replace Myer (MYR) as retailing’s black sheep, along came industry leader, Woolworths (WOW) yesterday morning with a high class entry of its own – a 2.5% slide in sales for the third quarter to $15.75 billion (the first quarter for the company’s 2105-15 financial year) thanks to a slide in supermarket shares and a slump in Big W – and as a result a big profit warning which sent the shares down 8%.
Woolies warned that, as a consequence of its heavy investment into prices and stores, group net profit before significant items would fall by between 28% and 35%, to between $900 million and $1 billion.
Last week Coles reported a 3.6% increase in September quarter same-store food and liquor sales, with topline sales up 4.7%, not to mention strong sales gains for Bunnings, Officeworks, Kmart and even the struggling Target department store chain.
Woolies says profits for the six months to December could be between $900 million and $1 billion (which is still a lot of money), while it spends $500 million cutting grocery prices and trying to convince shoppers that Woolies is a price chopper, not booster.
Sales in its Aussie supermarkets and grog shops fell 1% in the three months to October 4, which followed an 0.9% fall in the June quarter. In NZ same store sales rose 2.5%.
The in-house black hole for Woolies was the Big W mid-range department store chain which saw an 8.1% slide in same store sales in the latest quarter after an 11.7% slump in the June quarter.
In contrast, Wesfarmers’s Kmart chain had first-quarter comparable sales growth of 8.6%, and its Target chain had same-store sales of 3.2%. Kmart has been one of the best performing retailers now for years, especially in protecting its profit margins. Big W however is a black hole of losses.
The struggling hardware business, including the Master’s chain, saw a 20% rise in topline sales as a new store was opened and some existing stores converted to a new format. But it is still losing money.
This is a problem of Woolies’ own making, as is Dick Smith’s slide. Sliding same store sales (that’s outlets open at least a year or more) is a very slow and painful death for a retailer.
There’s a new chairman and board members and it is looking for a new CEO, so there’s more pain to come and a lower dividend.
WOW vs WES YTD – Woolies under more pressure
It was the third profit downgrade for the company so far in 2015 as it has lost with Coles, Kmart and Bunnings, plus Aldi and Costco.
Woolies new chairman Gordon Cairns said in a statement to the ASX, "The Board and management are focused on making the best long-term decisions across all our business. There will be short-term consequences, but we are confident that the decisions we are taking are necessary to realise the immense potential of our Group for our shareholders".
The news saw Woolies shares sold off and they lost nearly 10%. The shares ended the day at $24.70. Wesfarmers shares were caught up in the downdraft and closed off 4% at $40.18.
The news helped push the wider market down sharply on the day. The ASX 200 fell 1.3% at the close.
So far this year, Woolies shares are down 20% versus a 4% fall for Wesfarmers.
