The Business Times

Woolworths lands rare blow on Coles in Australian grocery price war

Published Wed, Feb 22, 2017 · 03:35 AM
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[SYDNEY] Australian supermarket leader Woolworths Ltd on Wednesday beat rival Coles in food sales growth for the first time in more than seven years on a quarterly basis, as its decision to sell its struggling hardware business paid off.

For 29 straight quarters Woolworths has seen number 2 rival Coles, owned by Wesfarmers Ltd, gnaw at its share of Australian grocery dollars as Woolworths charged customers more to compensate for the loss-making hardware chain.

Under new Chief Executive Officer Brad Banducci, Woolworths has quit the hardware business, and other non-core units like service stations, enabling it to cut shelf prices and spend on staff bonuses and training to win customers back.

While net profit from continuing operations fell to its lowest in a decade in the half-year to Jan 1, food sales grew 3.1 per cent in the second quarter, Woolworths said, triple the rate reported by Coles a week earlier and beating it for the first time in 30 quarters. "There are genuine signs in the numbers today that Woolworths is turning around," said Evan Lucas, a strategist at IG Markets.

Net profit from continuing operations fell by a sixth to A$785.7 million (US$603 million) for the six months to January. Including one-offs like charges for its hardware exit, the company swung to an interim net profit of A$725.3 million from a A$973 million loss the previous first half.

Woolworths cut its interim dividend to 34 Australian cents from 44 cents, but its shares rose more than 4 per cent in intraday trading to their highest intraday peak in 15 months, while the broader market was flat. "We were comfortable with the progress we made to ensure we had the right the right mix of price for customers (but) we feel we still have some work to do on how we communicate price," Mr Banducci told journalists.

He offered no earnings outlook but said the company expected"trading conditions to remain competitive for the rest of this financial year".

Woolworths said it experienced deflation of 0.2 per cent in the first half, led by cheaper fruit and vegetables.

Group sales from ongoing business rose 2.6 per cent to A$29.1 billion.

The company said its costs were driven higher, in part, by A$110 million in performance bonuses.


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