WOOLWORTHS has posted its first drop in annual profit since 1999 after triggering a $420 million write-down of its embattled Dick Smith chain, and will turn to a revitalisation of its flagship supermarkets group and the rollout of Masters hardware to drive future earnings growth.
A final sale of Dick Smith is yet to be clinched but the electronics business is believed to have attracted a shortlist of possible buyers with a deal expected soon.
In the meantime, a decision to write down the asset value of Dick Smith to only $20 million sank the company’s bottom line, forcing Woolworths to post a 14.5 per cent dip in net profit to $1.82 billion and marking the first time it has witnessed a retreat in earnings in 13 years. Dick Smith had already cost Woolworths a $300 million provision for the first half.
However, buoyed by the dominance of its food and liquor offering, as well as its other retail businesses such as Big W, Woolworths recorded a net profit from continuing operations (excluding Dick Smith) of $2.182 billion, up 3.6 per cent. Sales rose 4.8 per cent to $55.5 billion. The profit was slightly below market expectations.
Chief executive Grant O’Brien, who is less than one year in the top job at the retailer, said yesterday a refocus on its earnings engine, supermarkets, would be heralded by $1.3 billion in capital expenditure this year of which the bulk, more than $813 million, would be harnessed to re-establish and extend its leadership in food, packaged groceries and liquor.
The increase in spending on a new supermarket store format for 100 existing sites and the construction of more than 30 new stores this year using the new model marks the biggest investment in its supermarkets in nearly three years, with Mr Grant confident investors will get bang for their buck.
Woolworths has trialled a handful of its new format stores around the country and was pleased with the results, he said.
Mr Grant said the investment wasn’t ”outlandish” and although up significantly on the $614 million spent on supermarkets in 2012, it was still slightly below the $847 million in supermarkets capital expenditure booked in 2010.
”Of the strategic priorities that I put up in November last year, [supermarkets] was No. 1 for a good reason and that is because I recognise the capacity that business has got for improvement, there is a lot of upside available.”
New stores and refurbishments, as well as improved marketing and better value to entice shoppers, would also help drive profits with Woolworths expecting the division to fuel group profit growth of 3 per cent to 6 per cent in 2012-13.
He said Woolworths could once again return to its historic growth record of double-digit profit expansion as it faced a tough economic climate and a resurgent competitor in Coles.”That’s our ambition. That’s how we are attacking this business … we believe we can control our own destiny and be clever enough as retailers to provide reasons for customers to buy.”
Elsewhere in the group, a further $124 million in capex would be devoted to its hardware business Masters this year. Mr O’Brien said that division should emerge profitable in 2013-14 after swallowing about $100 million in costs the year before last and $80 million in costs last financial year. Woolworths declared a final dividend of 67¢ a share payable on October 12.
This story Administrator ready to work first appeared on Nanjing Night Net.