Sharpened focus drives Woolworths profits

Date : 28 February 2013

Woolworths has released its half year results for the period ending 31 December 2012, with group EBIT for continuing operations up 6.1% to AU$1,934.7m and net profits after tax for continuing operations before significant items up 5.5% to AU$1,247.2m. All business divisions contributed to EBIT growth with Australian and New Zealand supermarkets' EBIT growth recorded at 6.0% and 8.9% respectively.

Better efficiencies helping Australian Supermarkets grow

EBIT for Woolworths Australian Supermarkets (including liquor and petrol) grew 6.0% to AU$1,654.9m

  • Woolworths Australian Food and Liquor division has worked hard to manage capital expenditure and improve efficiencies, with EBIT increasing 6.1% to AU$1,583.9m. EBIT margin increased 10bps as a results of improved buying including benefits from direct global sourcing, a greater focus on reduced shrinkage, more effective promotions and the growth of private label and exclusive ranges. Cost of doing business was flat versus the same period last year, which was pleasing for management given rising energy costs and a large number of new stores not yet at maturity. Much of the money saved has been reinvested by the retailer to offer better prices for value conscious shoppers.
  • Petrol EBIT increased 5.3% to AU$71.0m as a result of more targeted fuel discounts, a shift in sales mix to more premium fuels, improved merchandise (non-fuel) sales, better buying with supply partner Caltex and tight cost controls.

Continued progress again strategic objectives

Woolworths Australian Supermarkets continues to make good advances on its strategic objectives:

  • First choice for fresh food - Woolworths has introduced some strong marketing initiatives to 'raise the bar on fresh food'. This is underpinned by new features in its store at Wolli Creek, Sydney which will now be rolled out, improved meat and seafood quality, new style bakeries in 42 stores and improving performance in packaged foods.
  • Unbeatable value - 'For Less For Families' is the overarching campaign that delivered targeted value which matters most for families in the half. Through price reductions in fresh, reduced waste and shrinkage and targeted customer offers the retailer continues to reinvest in price reductions.
  • Customer led - the retailer's 'Category Lab' has reviewed 75% of its sales base and now implemented continuous category reviews which are uncovering opportunities for better customer orientated ranges, tailored promotions and improved layouts. Everyday Rewards data is being better utilised to deliver targeted and relevant campaigns, and all store managers have been issued with ipads to enable more time on the shop floor.
  • Exciting new offers - Fresh sushi now in 18 stores and 49 by year end, fresh pizza bars being rolled out to 17 stores by year end, extensions to My Kitchen and Health & Beauty ranges, launch of premium private label 'Gold' with 18 products and Macro Wholefoods Market ranges growing at 40%, show how the retailer is delivering new and relevant offers.
  • Shopping tailored for our customers - continued developments of transactional mobile and ipad apps including seasonal information at Christmas and ability to check local fuel prices. Online growing well, up 50% YOY with more enhancements to come and more flexible fulfilment options, with click and collect now available at 119 locations.

New Zealand Supermarkets profits rise despite market challenges

In New Zealand Supermarkets EBIT increased 8.9% to NZ$162.3m, with gross margin up 26 bps. Given the challenges in the market of low growth, low inflation and a tough comparable trading period due to the upside of last year's Rugby World Cup, Woolworths will be pleased that despite sales only increasing 2.3%, profits continue to increase at a much faster rate. As in Australia cost of doing business decreased and margin improvements were achieved through more efficient operations, the leverage of group global sourcing and tight capital constraint.

'Sharpened focus' with the customer at the heart

Woolworths CEO and MD, Grant O’Brien, said, 'This result is a reflection of the sharpened focus on our core businesses. We have grown both sales and profits by pursuing a customer led strategy. We report a pleasing increase in net profit after tax from continuing operations before significant items of 5.5%. Despite ongoing challenging retail conditions as well as the transformational path our business is pursuing, growth in profitability in our core businesses was strong. Our strategic initiatives, which are providing a platform for the future success of Woolworths, continue to generate enhanced returns for our shareholders whilst improving the shopping experience of our customers. We are closer to our customers than ever before and have a deep understanding of their needs and drivers. This will help us to continue to achieve the win/win outcome for customers, suppliers and shareholders of lowering prices, improving quality and delivering sustainable profit growth.'

For a full round up of the retailer's half year sales results and our analysis - click here