Woolworths says double-digit growth remains an ambition despite a fall in profit, as it invests heavily in new outlets and markets to tide it over challenging retail conditions.
The retailing giant is opening dozens of new supermarkets and hardware stores but analysts question whether it should press ahead with its spending plans after posting a 17 per cent fall in first half net profit.
The steep fall was due to a $300 million charge for the restructure of the Dick Smith electronics chain.
After excluding the charge, the company’s first half net profit was up just 3.2 per cent compared to the previous corresponding period.
Chief executive Grant O’Brien said Woolworths had to reset its business to the prevailing conditions but stopped short of saying when the retailing giant would return to double-digit profit growth.
“Double-digit growth is our ambition and we’re putting things in place now to deliver on that,” he said.
“The next three years are going to be no better than the last three and certainly the next decade is going to be very different from the one that we’ve just come off, but we’ve got scope to adjust our business,” Mr O’Brien told analysts on Thursday.
“It’s the reality of the new era. We’re realistic about what we’ve got to do to change our business and reset it.”
Woolworths is also embarking on a grand online retailing strategy, while restructuring costs.
Mr O’Brien said the company was not planning to scale back its businesses or watch opportunities for growth evaporate.
Woolworths shares closed one cent lower at $25.30 on Thursday after it reaffirmed profit guidance in the range of two to six per cent for its fiscal 2012 and said it expected trading conditions to remain subdued for the rest of the year.
Net profit was $966.9 million for the six months to January 1, down 16.8 per cent from $1.16 billion in prior corresponding period, in line with analysts’ expectations.
It was the weakest performance from one first half to the next since fiscal 1999.
The retail giant will spend up to $100 million in its full fiscal year as it opens new Masters stores in an attempt to carve a slice of the $40 billion home improvement market.
Mr O’Brien said the first half was characterised by heavy discounting of food and alcohol as Woolworths served an additional 26.9 million customers from the previous corresponding period, a 3.8 per cent increase.
Heavy discounting would continue this year after a challenging start to 2012.
“I can’t remember when deflation was like it was and the rest of the trading environment was like it was,” Mr O’Brien said.
Options XPress market analyst Ben Le Brun said the discretionary retail end of the business was under pressure in a similar vein to the company’s biggest competitor, the Wesfarmers-owned Coles.
“This year is crucial for Woolworths to start winning business back off Coles after 10 consecutive quarters of lost momentum,” Mr Le Brun said.
City Index analyst Peter Esho said he was surprised by Woolworths’ decision not to pursue a share buyback given the tough retail conditions and discussion about wanting to divest around $200 million of property.
