Woolworths: new CEO and H1 results

Date : 26 February 2016

Woolworths has announced the appointment of a new CEO, on the same day that it has reported H1 results for the 27 weeks ending 3 January 2016, with sales down 1.4% to AU$31,983m and EBIT down 31.6% to AU$1,457m.

Brad Banducci appointed as new CEO

Despite what is clearly a tough set of results, Woolworths has appointed a new CEO in the form of Brad Banducci, the current MD of Woolworths Food Group. The appointment follows an international search for a new CEO, following Chairman Gordon Cairns making this his top priority when he joined the board last September.

Banducci has over 25 years experience in retail, including 15 in consulting and before his current Food Group role, led the successful growth of Woolworths Dan Murphy's liquor banner. The new CEO will have many challenges to overcome and is quoted as saying he aims to "recapture the spirit of innovation and customer focus right across the business."

Australian food and liquor sales up 0.7% to AU$22,347m

Modest sales growth was overshadowed by a 0.8% decline in like-for-like (LFL) sales. Although sales momentum did improve in Q2 and LFL growth remained negative, despite a 0.5% increase in transactions.

The decline in LFL sales was attributed to the AU$150m invested in price in the half, with average prices declining 2.1%. Woolworths finished the half with over 17,000 products now displaying better price parity to its main competitors, with the biggest price investment in groceries, bakery and produce. However, despite an improving picture in December, the retailer flagged that sales remained sluggish in the seven weeks ending 21 February.

Liquor continued to perform well across all major channels; destination, convenience and online, despite the efforts from Coles to turnaround its own fortunes in the channel. Sales of AU$4.4bn represent a 4.9% increase on the previous corresponding period.

Petrol sales declined 23.8% to AU$2,519m

Sales were impacted by a 2.0% decline in LFL volumes, declining average fuel prices, plus the changes that Woolworths has made to its alliance with Caltex. On a positive note, sales in its forecourt convenience stores increased 8.5% and 5.7% in H1, on a total and LFL basis repsectively.

New Zealand supermarkets a highlight

Sales increased 4.0% in H1 to NZ$3,176m, with LFL sales up 2.0%. Sales were assisted by 0.2% price inflation in the half, plus the bulk sale of gift cards and shoppers responding positively to the ongoing investment in lower prices - 750 SKU's are now included in the retailer's Price Lockdown campaign.

Rebuilding Woolworths will take three to five years...

With clear headwinds in its core food business, plus the disposal of its Masters hardware chain and sales continuing to decline in its Big W general merchandise business, down 3.9% in H1, the retailer has many challenges to overcome. A process that will take three to five years according to the Chairman, Gordon Cairns.

Now that a new CEO is in place, priorities will include; improving the customer experience, portfolio optimisation, better leadership, board renewal, the embracing of a listening culture and more disciplined capital management. With the landscape set to remain competitive, change will take time, but Woolworths appears to be making positive changes and learning from successful retailer turnaround plans that we have seen around the world in recent years.