22 February 2017
Woolworths reports strong sales growth for H1

Australia’s leading retailer Woolworths has reported that its sales grew 2.6% to AU$29bn (US$22bn) for the half-year ended 1 January 2017. Profits also grew to AU$725m (US$558m), from a loss of AU$973m (US$748m).

Australian food division grows in H1

Woolworths supermarkets posted a strong growth of 2.8% to AU$19bn in H1 2017, and 1.9% increase in like-for-like (LFL) sales. This is helped by a decline in prices, which drove a continued growth in transactions and a recent growth in items per basket. The retailer has been driving down prices, averaging 2.4% decline relative to the same period last year.

However, profits for the division has declined 13.9% to AU$812m. The company cited team incentive payments, team training and higher depreciation from renewal and IT investments as key reasons. They have completed 26 store renewals and 41 front end upgrades in this period. We believe it will be a while before the division posts profit growth, as the company continues its investments to rebuild Woolworths.

Strong turnaround in latest quarter

After seven and a half years (or 30 consecutive quarters), Woolworths has surged ahead of key rival Coles in quarterly sales growth. It recorded a 3.1% gain for LFL sales against 0.9% for Coles, which has been seeing a significant slowdown. We see bigger basket size as another sign of healthy growth amidst a challenging environment, with Australian shoppers having more choice across multiple channels. This growth momentum will likely sustain with a return of their loyalty program and improved in-store experience.

Liquor sales grew despite competitive pressure

Endeavour Drinks Group (EDG) increased 4.0% to AU$4m, with 2.4% LFL sales. All retail formats grew LFL, accompanied by double-digit sales growth for Dan Murphy online. Eight Dan Murphy stores, their big box format, have been added and are showing strong performance. BWS also recorded strong sales with an investment in lower prices over the summer promotion and festive Christmas and New Year period. 815 BWS stores now offer Click and Collect, a new initiative which allows customers to pick up their liquor after shopping online.

New Zealand Food up by 1.6%

LFL sales were flat in the half year but increased 1.1% excluding bulk gift card sales. Sales were boosted by lower prices, improved service and fresh food items. The division sustained its growth momentum from H2 2016, when LFL sales were gaining at 0.6%.

Other divisions showed mixed results

Department store BIG W recorded a loss of AU$27m in H1 2017, and a LFL decline of 6.3%. The company is reviewing BIG W strategic plan in the next few months. Hotels posted sales growth of 3.1%, while home improvement sales registered a decline of 21.4%. The petrol business has been classified as a discontinued operation with the partnership with BP announced. Proceeds from this sale will be used to strengthen its bottom line.

‘Building sales momentum’ for second half

Woolworths’ CEO Brad Banducci said, “While we expect trading conditions to remain competitive for the remainder FY2017, we are focused on building the sales momentum we have achieved over the last six months as we work to restore sustainable growth in Australian Food. We note, however, that the second half will also be a period of continued investment in improving the store experience, depreciation from our renewal and IT investments and higher team incentive payments.” 

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