Now the underpayment scandal hitting major retailers is getting costly with the total bill, so far approaching $600 million.
The escalation (from just under $500 million) came as the giant retailer, Woolworths released its interim results containing a third increase in the bill for the underpayments scandal.
Besides Woolies (the biggest) other underpayers include Target (owned by Wesfarmers), Coles (when owned by Wesfarmers as well and Super Retail Group.
Woolies revealed the cost of the underpayments scandal had blown out to $315 million.
On top of that, there’s $80 million in interest payments and other costs, lifting to total expense to just short of $400 million, with four years of payroll investigations still to come.
The underpayments are having an impact on earnings with reporting yesterday a drop in net profit for the December half saw the company retroactively revise prior years’ its profit and loss statements to include remediation costs.
Earnings in the 2018-19 financial year were lowered by $52 million and a total of $69 million in back payments were made to affected staff (who are salaried managers and other senior employees) in the first half.
Net profit after tax from continuing operations and after significant items fell nearly 2% to $887 million, thanks to an $80 million provision for remediation costs for the half.
Investors were spared any impact, the retailer lifting interim dividend to 46 cents a share from 45 cents.
That’s not very much at all and it was clearly a deliberate move to try and keep the shareholder base happy while the damage bill is growing.
Investors and analysts weren’t impressed. Woolies executives were berated on the company’s conference call discussing its interim earnings on Wednesday afternoon.
Bank of America analyst David Errington was the most vocal and bagged the supermarket chain for the scale of its underpayments, calling for resignations and asking if it was possible to “drag back” money from previous management.
“You have had a systematic underpayment of staff to the magnitude of nearly half a billion dollars. You owe us as shareholders to explain how that happened,” Mr. Errington said.
“Is there going to be resignations from the board? Because this is half a billion dollars that you’re expecting us to chew.”
Seeing the initial $200 million to $300 million estimate is close to doubling, the criticism was justified.
Woolworths reporting $32.33 billion in revenue for the half. Comparable sales for the company’s key supermarkets division were up 5.1%, down on market hopes of 5.6%
Struggling department store Big W posted its first profit growth since 2016, contributing $50 million in earnings before interest and tax, with comparable sales up 3.2% which was a better performance than rival Target.
Comparable sales at the business’ soon to be demerged Endeavour Drinks division rose 1.7% and EBIT increased 6.7% to $338 million, thanks to growth in the company’s own-brand liquor division Pinnacle. Costs of $51 million relating to Endeavour’s looming demerger were also booked in the half.
CEO Brad Banducci said that the half was positive but had many “material challenges”.
“While some of the challenges will continue to be felt in the second half, as a business, we also have a lot to be positive about as we look forward to moving from ownership to partnership with Endeavour Group, building out the Woolworths Group digital retail ecosystem and working with our partners and other stakeholders to create a better tomorrow,” he said in yesterday’s ASX statement.
However, trading for the new year was muted, Mr. Banducci warned, with total sales growth of just 3% and comparable sales of just 2%.
In a normal year that slowing would have been the focus of investors but the underpayments scandal took centre stage and will continue to do so for much of 2020, a point the CEO acknowledged yesterday.
Final calculations of Woolworths’ underpayments will involve a “substantial volume of data”, Mr. Banducci said, warning the total underpayment provision could change in the future.
“Determining the historical payment shortfall requires consideration of numerous clauses of the [general retail award], which translates into over 2,000 decision rules for the purposes of the Group’s analysis, across each year, for every current and former team member,” he said.
“Changes to any of these variables have the potential to result in a future adjustment to the provision in subsequent periods as analysis and work continues.”
