Woolworths expects tough times for retailers are here to stay as consumers have “stopped dead”, leading to the supermarket giant’s own anaemic trading for July and August.
Australia’s biggest supermarket chain has forecast an increase in net profit of between two and six per cent for this financial year but its guidance is lower than in previous years.
Woolworths is also preparing to spend $100 million on its new home improvement business.
In his last presentation before retiring next month, chief executive Michael Luscombe said he had to be honest with investors about the tough 12 months ahead as consumers continued to save and not spend.
“It’s not to do with falling household income, it’s to do with their confidence in the future,” he said on Thursday. “We see nothing at this moment to suggest that that may change, particularly around discretionary spending.”
Woolworths said full year profit increased by 5.1 per cent to $2.12 billion for the 52 weeks to June 26.
Mr Luscombe said trading in July and August had “pretty much mirrored” the trend experienced in late May and June when consumers “stopped dead”.
“There was no doubt that when you got to that mid-May through June that retailing in general just had it really tough,” he said.
Shares in Woolworths closed down $1.52, or 5.57 per cent, at $25.75, the lowest in two weeks.
Sales grew by $2.4 billion, or 4.7 per cent, to $54.1 billion and supermarkets achieved volume and market share growth.
Woolworths anticipated that start-up costs for its new Masters home improvement business could be as much as $100 million, which would affect earnings in fiscal 2012.
The first Masters store is due to open soon in Melbourne and start-up costs will be affected by the pace of the rollout.
Mr Luscombe anticipates the average Masters store will record between $23 million and $25 million of annual sales in the second year of operation.
Woolworths’ online business made up about two per cent of its total business last year and it now stocks more than 2500 private label products, he said.
Woolworths said it increased gross margins by 12 basis points, reflecting the move to distribution centres in liquor from direct-to-store delivery.
The company was also benefiting from global direct sourcing, improved loss of product or “shrinkage” rates, increasing sales of exclusive brand products and the success of new store formats.
The hotels division achieved a better than expected result.
Incoming chief executive Grant O’Brien will take up his role on October 1 and is expected to provide a market update towards the end of the year.
