Shareholders in Woolworths have been told to expect possible capital management initiatives later this year after the giant retailer completes the sale of its petrol station business to a UK company.
This would be on top of the normal dividend with the 2018-19 interim being boosted by more than 4% to 54 cents a share in the wake of the company reporting a modest 2.1%rise in earnings for the December half year to $920 million.
The company told the ASX in yesterday’s report that it was waiting on Foreign Investment Review Board (FIRB) approval for the $1.7 billion sale of the service stations to the UK company, EG Group.
That is the only condition remaining on the sale and Woolies said that “assuming successful FIRB approval, the Board will consider initiatives to return capital to shareholders, including an off-market buyback.”
“Details will be announced once a final decision has been made.
That indicates the capital management options have been discussed at board level and the company now has a preferred course of action with the off-market buyback the top choice.
Investors were not impressed and the shares fell more than 5% on the day to $28.69. Some analysts and others would have liked something more definitive on capital management.
And the market can expect a big announcement about the future of the ailing but recovering) BIG W department store chain which reported another (smaller loss). Woolies says it has been reviewing the chain and its structure and expects to be making an announcement in the next month or so.
Woolies said in yesterday’s announcement that comparable (like for like) store sales rose 2.7% in the second quarter (Coles earlier this week reported a 1.3% rise).
“It was a challenging half across all of our businesses, with subdued customer demand and volatile weather in the second quarter,” Chief Executive Brad Banducci said in a statement to the ASX on Wednesday.
“While the first half was below our financial expectations, we made progress in a number of important areas and are confident that if we remain focused on our key priorities,” he added. “We will continue to transform our business for the benefit of all of our stakeholders.”
Including its service station business, which it is in the process of selling to British group EG, net profit was up 1 percent to $979 million.
“In Australian Food, sales momentum improved in the second quarter (Q2’19 comparable sales: +2.7%) following a weaker than expected first quarter impacted by the removal of single-use plastic bags and competitor activity. Despite our sales improvement, the market remains challenging with subdued consumer demand and input cost pressures,” Mr. Banducci said in yesterday’s statement.
“Sales for the half increased by 2.3% and EBIT increased by 4.0%. CODB growth slowed as we cycled investment in the prior year and began to deliver against our simplification agenda. Comparable sales for the first seven weeks of H2’19 have improved modestly on Q2’19 following more settled weather.
“In New Zealand Food, sales growth for the half was strong although it slowed in the second quarter, with December the most challenging month of the half, impacted by lower market growth. EBIT was marginally below the prior year with higher CODB due to investment in establishing CountdownX. Online sales continued to grow strongly at 40.3% with sales penetration of 6.5%.
“Endeavour Drinks’ sales increased by 1.8% and EBIT decreased by 6.4% with Dan Murphy’s below expectations in a low-growth market impacted by cooler and wetter weather around key events and the timing of New Year’s Eve.
“Steve Donohue has assumed the role of interim managing director of Dan Murphy’s and will continue to work with the team to position Dan Murphy’s for the next horizon of growth. We have a clear plan in place focused on localised ranging, building ‘discovery’ into all aspects of the customer experience and being digitally-led.
“BIG W sales momentum continued with comparable sales growth in the second quarter of 5.0%. While the improvement was pleasing, growth was mainly driven by Online and lower margin categories such as Toys and Leisure. Summer apparel was below expectations due to the slow start to the summer selling period.
“Costs were well controlled with the loss for the half of $8 million a marginal improvement on the prior year. We still expect losses for F19 to be below F18 losses (F18: $110 million) but this remains subject to market conditions.
“With BIG W sales having stabilised and customer metrics improving, we are now focused on converting sales into profit and are currently reviewing the BIG W store and DC network. We will provide an update on the outcomes of the review in the next four to six weeks.
“Hotels’ sales growth slowed as it cycled a very strong period of sales and profit growth in the prior year. Bars and Gaming sales growth was lower over the half while Accommodation continued to grow strongly.
“Sales improved in December driven by Bars and Food. EBIT was marginally below the prior year due to lower sales growth and the impact of business mix on gross margin.
“During the half, we implemented a number of changes to the way we operate to improve responsible gaming practices including the removal of the complimentary service of alcohol (in addition to states where previously prohibited).” The company is facing claims that it has allowed these sales to be made.
