Woolworths is cutting 500 jobs, closing 30 stores and looking to sell EziBuy as the struggling supermarket chain pushes ahead with a major restructure.
The moves to make to supermarket chain more efficient will mean restructuring costs of $959 million to be recognised in the 2016 financial year results.
The news was welcomed by the market. In early trade, Woolworths shares jumped 5% to $23.60.
CEO Brad Banducci says the turnaround measures since he was appointed in February this year are showing real momentum.
“Five months ago I said we would work hard to get customers to put us first, to improve our culture and rebuild momentum,” he says.
“Today’s announcement demonstrates both the progress we are making and our absolute commitment to act quickly to rebuild the business by doing the right thing by our customers, shareholders, team and suppliers.”
He says 2016 year EBIT (earnings before interest and taxes) from continuing operations before significant items will be between $2.55 billion and $2,57 billion.
The retailer is changing the way it rewards staff. Sales per square metre and Return On Funds Employed have been introduced as key long-term performance indicators.
Woolworths, being squeezed by discount competitors including Aldi, which now has 11% of the market, has been running behind its main competitor Coles in terms of sales growth.
Coles, in its latest quarterly report, posted sales growth of 5.9% while Woolworths has been flat.
In February, Woolworths posted a loss of $972.7 million for the first half of the financial year, its first for more than 20 years, driven by a massive $1.9 billion write down in the value of the troubled Masters hardware business.
The main business also was weaker with sales dropping 1.4% to $32 billion. And Australian food and liquor sales were flat at $22.34 billion, up just 0.7% over the six months.
The latest restructuring costs include redundancies, impairment of IT and related assets, impairment of supply chain assets and consultancy and other third party costs.
Redundancy costs of $35 million reflect a reduction in 500 roles across the support office and supply chain network.
And Woolworths intends to close 30 stores before the end of the lease-term, costing about $196 million in 2016.
“We have carried out a comprehensive store network and property portfolio review across the group resulting in impairments and other charges of $344 million,” Banducci says.
“These costs primarily relate to the planned store closures of underperforming and non-strategic stores as well as the deferral and exit of non-core property development assets in line with the revised property network plan.”
Woolworths has also decided to slow net new supermarket openings from 90 planned over the next three years to about 45.
There have been costs of $43 million at BIG W, including getting rid of some products, redundancies and IT costs.
The EziBuy business has been fully separated from the BIG W business. “An impairment charge of $309 million has been made against EziBuy. “We are currently exploring options for the sale of the business,” Banducci says.
BIG W is expected to report a 2016 full year loss of $12 million to $7 million and EziBuy $13 million to $18 million before significant items.
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