ID :
108720
Fri, 02/26/2010 - 17:38
Auther :
Shortlink :
http://m.oananews.org//node/108720
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Woolworth first-half profit gains 11.4%
(AAP) - Woolworths Ltd grew first half net profit 11.4 per cent and denied it was igniting a price war after saying it will continue to lower prices aggressively in 2010.
But analysts questioned the rationale for the company's price cuts on 11.7 per cent
of supermarket products, whether price cuts would be made on the rest, and whether
cost benefits from a stronger Australian dollar had been passed on.
Australia's biggest grocer posted net profit of $1.095 billion for the 27 weeks to
January 3, up from $998 million in the prior corresponding period, and double that
of its interim profit four years ago.
The supermarkets, liquor, consumer electronics, hotels, general merchandise and
financial services conglomerate grew interim earnings before interest and tax (EBIT)
by 11.1 per cent to $1.683 billion.
It said second half 2009/10 EBIT would outpace sales growth despite further planned
price reductions and net profit would increase by eight to 11 per cent.
Chief executive Michael Luscombe said earnings were underpinned by strong growth in
the group's supermarket's business, which is the country's biggest and 1.5 times the
size of its next biggest rival, Wesfarmer's Coles unit.
The supermarkets division increased revenue 6.8 per cent to $18.1 billion, excluding
petrol.
Including petrol, revenue grew 4.3 per cent to $20.9 billion.
The division's profitability increased, with interim EBIT to supermarket sales
rising 41 basis points to 6.45 per cent, and EBIT on petrol lifting from 1.9 to 2.1
cents per litre.
Mr Luscombe told analysts Woolworths' decision to drop prices on 3,500 products in
April, June, July and November was done independently of suppliers and cost it an
annualised $120 million in the December half.
"We're now at a point ... where we've actually got the supply chain humming like a
well-oiled machine that ... we're going to reinvest in the retail loop by taking our
prices down," he said on Friday.
More price cuts could have been made in December but the impact would have been lost
in the "hullabaloo" of Christmas, he said.
But competition law expert UNSW Associate Professor Frank Zumbo said Woolworths
needed to explain price movements on its remaining 26,500 product lines and if it
had passed on to consumers cost benefits from a stronger Australian dollar on
imported products and ingredients.
"We should be seeing falls in all imported products," he said.
He also questioned Woolworths' claim that food inflation in Australia dropped
sharply to 1.6 per cent during the December 2009 half.
"In many other OCED countries food inflation has actually dropped during the
December 2009 quarter, but in Australia it increased and is now one of the highest
in the OECD."
Mr Luscombe said more earnings growth would come from cost efficiencies as
Woolworths lowered its prices again in the second half of 2009/10.
Asked if Woolworths would aggressively invest in price going forward, he said: "I
think that's what we said."
"There's no price war out there at the moment.
"We've certainly made some pricing decisions (and) we've yet to see any response
other than words."
Interim revenue rose 4.2 per cent to $27.2 billion, and earnings per share (EPS)
rose 10 per cent to 89.1 cents.
The board declared an interim dividend of 53 cents per share, up five cents on the
previous corresponding period.
Analysts said the interim result was in line with expectations on almost all
metrics, with earnings growth from the food and liquor divisions in line with
expectations to the cent.
But Credit Suisse's Grant Saligari and Samantha Carleton called Woolworth's strategy
turn "puzzling" given that it allowed its gross margin to rise while its competitor
performed better.
"Where is the productivity loop?" they asked in a note to clients.
Woolworths' decision to launch a $400 million on-market share buyback pushed its
share price $1.39, or 5.46 per cent, higher to $26.84.
"Their balance sheet is clearly improving. We saw free cash up 160 per cent to $858
million," IGMarkets' institutional dealer Chris Weston said.
"It's not a massive (buyback) amount but it will be EPS accretive," Mr Weston said.
But analysts questioned the rationale for the company's price cuts on 11.7 per cent
of supermarket products, whether price cuts would be made on the rest, and whether
cost benefits from a stronger Australian dollar had been passed on.
Australia's biggest grocer posted net profit of $1.095 billion for the 27 weeks to
January 3, up from $998 million in the prior corresponding period, and double that
of its interim profit four years ago.
The supermarkets, liquor, consumer electronics, hotels, general merchandise and
financial services conglomerate grew interim earnings before interest and tax (EBIT)
by 11.1 per cent to $1.683 billion.
It said second half 2009/10 EBIT would outpace sales growth despite further planned
price reductions and net profit would increase by eight to 11 per cent.
Chief executive Michael Luscombe said earnings were underpinned by strong growth in
the group's supermarket's business, which is the country's biggest and 1.5 times the
size of its next biggest rival, Wesfarmer's Coles unit.
The supermarkets division increased revenue 6.8 per cent to $18.1 billion, excluding
petrol.
Including petrol, revenue grew 4.3 per cent to $20.9 billion.
The division's profitability increased, with interim EBIT to supermarket sales
rising 41 basis points to 6.45 per cent, and EBIT on petrol lifting from 1.9 to 2.1
cents per litre.
Mr Luscombe told analysts Woolworths' decision to drop prices on 3,500 products in
April, June, July and November was done independently of suppliers and cost it an
annualised $120 million in the December half.
"We're now at a point ... where we've actually got the supply chain humming like a
well-oiled machine that ... we're going to reinvest in the retail loop by taking our
prices down," he said on Friday.
More price cuts could have been made in December but the impact would have been lost
in the "hullabaloo" of Christmas, he said.
But competition law expert UNSW Associate Professor Frank Zumbo said Woolworths
needed to explain price movements on its remaining 26,500 product lines and if it
had passed on to consumers cost benefits from a stronger Australian dollar on
imported products and ingredients.
"We should be seeing falls in all imported products," he said.
He also questioned Woolworths' claim that food inflation in Australia dropped
sharply to 1.6 per cent during the December 2009 half.
"In many other OCED countries food inflation has actually dropped during the
December 2009 quarter, but in Australia it increased and is now one of the highest
in the OECD."
Mr Luscombe said more earnings growth would come from cost efficiencies as
Woolworths lowered its prices again in the second half of 2009/10.
Asked if Woolworths would aggressively invest in price going forward, he said: "I
think that's what we said."
"There's no price war out there at the moment.
"We've certainly made some pricing decisions (and) we've yet to see any response
other than words."
Interim revenue rose 4.2 per cent to $27.2 billion, and earnings per share (EPS)
rose 10 per cent to 89.1 cents.
The board declared an interim dividend of 53 cents per share, up five cents on the
previous corresponding period.
Analysts said the interim result was in line with expectations on almost all
metrics, with earnings growth from the food and liquor divisions in line with
expectations to the cent.
But Credit Suisse's Grant Saligari and Samantha Carleton called Woolworth's strategy
turn "puzzling" given that it allowed its gross margin to rise while its competitor
performed better.
"Where is the productivity loop?" they asked in a note to clients.
Woolworths' decision to launch a $400 million on-market share buyback pushed its
share price $1.39, or 5.46 per cent, higher to $26.84.
"Their balance sheet is clearly improving. We saw free cash up 160 per cent to $858
million," IGMarkets' institutional dealer Chris Weston said.
"It's not a massive (buyback) amount but it will be EPS accretive," Mr Weston said.
