Woolworths profits tank, chairman and CEO are out

Photo: Scott Olson/Getty.

Woolworths chairman Ralph Waters is stepping down as the struggling supermarket group announces a worse than expected slump in profit, down 12.5% to $2.146 billion.

Gordon Cairns, a former CEO at Lion Nathan and chairman of David Jones, will become chairman from Tuesday next week.

The company announced the chairman’s departure at the same time it released the full year results, showing weak sales and little prospect of profit improvement for the next six months. The CEO, Grant O’Brien, announced his departure in June.

“The most immediate issue is to identify new leadership to take the business forward,” Cairns said today. “The CEO search process has been underway since June and is progressing well.”

In June, the company downgraded its full year profit forecast to flat from a 1.8% increase. The result for the previous year was $2.45 billion but the actual result came in well under that. However, net profit before significant items came in at $2.45 billion.

Revenue fell 0.1% to $61.15 billion but the company still announced a full year dividend of 139 cents, up 1.5%.

And improved profits are still some way off. Cost cutting is ahead of the $500 million target but this won’t be enough to offset the expense of resetting the business.

“We expect investment in price and service to continue to exceed cost savings,” the company said. The impact of this will be most pronounced in the first six months of this financial year.

“We are ensuring that all our divisions are focused on improving sales momentum over the key Christmas trading period,” the company said.

Sales in the second half of 2015 were subdued with only 2.1% growth in Australian Food, Liquor and Petrol divisions.

Petrol sales dropped 20% to $5.632 billion. Food and liquor was up 2.3% to $42.132 billion.

The results in detail:

Woolworths says it achieved price parity with Coles at the end of June with average price deflation of 5.2% in the June quarter.

Sales at the company’s home improvement business improved but the division is still losing money.

Masters sales were up 23.7% to $930 million and the 58th store opened during the year. But losses were running at $224.7 million, compared with the previous $169 million loss.

Big W sales were still dragging with sales down 5.7% to $4.1 billion. July and August were disappointing with sales for the first eight weeks of 2016 dropping 8.9%.

The CEO Grant O’Brien announced in June he was stepping down, citing the disappointing and below expectations results.

The rot started in December last year with subdued sales. This continued into this year with disappointing sales in April and no improvement in May and June.

In general, prices have been falling at both Woolworths and Coles as the big supermarkets face increasing pressure from smaller players including German group Aldi which is aggressively pushing into the Australian eastern states market.

This is squeezing the once fat margins of both groups.

However, Coles, owned by Wesfarmers, is getting growth of about 2.2%, according to its latest results.

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