Woolworths posts a $1.23 billion loss, cuts dividends

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Woolworths posted a full year net loss of $1.23 billion, as the retailer exits the hardware industry, restructures and rebuilds its supermarket business.

The worse than expected loss was a stark contrast to the $2.146 billion profit of 2015.

Total revenue for 2016 slipped 0.8% down to $60.65 billion.

Excluding significant items, net profit was down almost 40% to $1.558 billion. Woolworths announced yesterday it was shutting its loss-making Masters hardware business, selling the property and putting at risk the jobs of 7700 people.

The retailer’s first full year loss for more than 20 years was on the back of writedowns of $4.01 billion before tax or $2.627 billion after tax, mainly on the home improvement business.

A final dividend of 33 cents a share was declared, bringing the full year payout to 77 cents, a 44.6% fall from the 139 cents of 2015.

Food sales were down 0.2% to $34.79 million, a continuation of flat growth while the new CEO, Brad Banducci, works on a transformation program, what he calls the “rebuilding of Woolworths”.

BIGW reported a loss before interest and tax before significant items of $14.9 million largely due to lower sales and extensive clearance activity.

Woolworths has been under pressure from discount supermarket chains including Aldi and is running behind its major competitor, Coles, which yesterday reported full year earnings growth of 4.3%.

“We are seeing early signs of progress as we work to restore our competitiveness and improve our culture in Australian food,” says Banducci.

“We have also addressed significant issues facing the Group with the decision to exit home improvement.”

Banducci says there are early signs of momentum but warned of a highly competitive market.

“As we have consistently said, this is a three to five year journey,” he says.

The results in detail:

One consequence of increased competition is a continuing slide in shelf prices at Woolworths. Average prices fell 2.3% in 2016. Excluding tobacco, average prices fell 3.8% in the fourth quarter.

This is part of the reason sales per square metre fell at Woolworths supermarkets by 3.7% to $16,000.

“We invested over $500 million in lowering prices or not passing through cost price increases to our customers,” says Banducci.

“We continue to reduce our reliance on promotions in favour of lower shelf prices with 1,580 products on our price dropped program by the end of the year.”

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