Gordon Cairns, the new chairman of Woolworths, opened the his first annual general meeting with an apology for what he called “poor” profit results and subsequent falls in the company’s share price.
“Can I start by acknowledging your disappointment, and ours, at where we find ourselves,” he told the shareholders. “The results for 2015 were frankly unacceptable, and the disappointing share price performance has reflected this.”
Woolworths sales have been flatlining with a rise of just 0.4% to $11.064 billion in first quarter for food and liquor. And it expects profit to fall to between $900 million to $1 billion in the first half of 2016, a 28% to 35% drop when compared to the same six months last year.
It’s key competitor, Coles, is doing a lot better, reporting a 4.7% rise in sales for the same quarter.
At the same time, both big supermarket groups are under pressure from low-cost global players Aldi and Costco starting to eat market share.
The Woolworths share price has gone from a high this year of $34.70 to $24.22 today.
Cairns, the chairman of Origin Energy and a former CEO of brewer Lion Nathan, says the entire senior leadership group took responsibility for the “poor” results. Chairman Ralph Waters and CEO Grant Oâ€™Brien have both stepped aside.
“Now I feel is the time to move on, as we cannot change the past, but we must learn from it, and urgently address the future,” he told the AGM.
“We have made some mistakes, acknowledged those mistakes, publicly learned from them, and now are going about fixing them.”
Cairns is currently interviewing for a new CEO. He took over as chairman in August from Waters who had been in the job for more than four years.
He has identified three key areas to work on:
This is 70% of profits at Woolworths. This involves bringing shelf prices down. “We have improved the service level in stores by adding staff, and ensuring availability, and are upgrading the look and feel of stores,” Cairns says. “But again we have to be patient here. Customers who abandoned us because we were uncompetitive will not suddenly switch back, and laying down our future pathway will not happen overnight.”
The home improvement business has been losing money, about $600 million so far. “The opportunity in home improvements is compelling,” says Cairns. However, he says it’s clear the business cannot afford to continue losing $200 million a year. “When I joined I said I had an open mind on Masters, and that the board would be informed by the numbers from the five year plan and our options from that,” says Cairns. “This is what we as a Board are working on.”
Cairns says the business is making half what it was five years ago. “The discount department store sector is rapidly changing and is highly competitive,” Cairns says. “But we have not helped ourselves with our value proposition, some execution issues in IT, and a lack of leadership.”
Private equity firms are reported to be running a ruler over possible bids for both BIG W and Masters.
This week Woolworths announced that Roger Corbett, a former CEO of Woolworths, is returning as an advisor to the board of directors.