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Woolworths Profit Falls 12.5 per cent; Cairns Confirmed as New Chairman

Woolworths Profit Falls 12.5 per cent; Cairns Confirmed as New Chairman
Aug 28, 2015 By Simon Herrmann

Australian supermarket giant Woolworths Limited (ASX:WOW) announced a 12.5 per cent drop in profit and confirmed Gordon Cairns as new Chairman.

Total revenue was basically flat, falling 0.1 per cent to $61.15bn while net profit came in at $2.15bn. Woolworths states that “certain significant expenses were incurred outside the ordinary course of our trading operations resulting from transformation projects and property portfolio management initiatives” These one-off costs were merchandise transformation costs of $148m, business transformation costs of $199m or property losses of $35.6m. Excluding these costs underlying profit actually increase 0.1 per cent.

The company left the final dividend unchanged at 72 cents per share, resulting in a total dividend of 139 cents, up 2 cents from FY14. Based on Woolworths’ closing price of $27.05, the distribution yields 5.13 per cent.

Overall the results were in line with previous guidance and should not surprise investors anymore. Excluding significant items, the performance was broadly in line with FY14 and Woolworths will now commence a three year plan to regain sales momentum and improve operating efficiencies.

Woolworths’ Chief Executive Officer Grant O’Brien said that the company had delivered sales and profit in line with the prior year despite significant challenges and structural changes, however he calls it “below our expectations.”

He continues: “The market environment has changed dramatically with stronger competition and significant shifts in customer’s shopping behaviour. Woolworths is evolving and innovating to meet these challenges and finding new ways to delight our customers.”

The Home Improvement chain Masters, which recorded a loss of $224.7m, remains a headache for the company. Even though business transformation into a new format has resulted in higher sales, the bottom line is that Masters is not able to compete with Wesfarmers (ASX:WES) rival Bunnings Warehouse.

Australian Food, Liquor and Petrol earnings grew modestly at 2.1% to $3.4bn while New Zealand supermarkets recorded 11.7% growth.

WOW’s share price has declined ~27% in the past 12 months and is down nearly 12% year-to-date.

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Simon Herrmann Author: Simon Herrmann Aug 28, 2015

Simon is a financial analyst at independent research firm Wise-owl specialised in small-mid cap growth opportunities and ethical investment opportunities. Simon's aim is to disrupt the cliché approach to investment decision making as he believes that socially and environmentally responsible behaviour is a necessity to long-term wealth creation. Simon has a deep fundamental understanding of the global financial landscape and has compiled 300+ research reports, valuations and corporate appraisals. Simon is commonly featured in major media outlets and his research is published weekly in The Australian.

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