Woolworths Q1 remains challenging

Date : 03 November 2015

Woolworths has reported a 3.6% sales decline to AU$12,395m for its Australian food, liquor and petrol division over the 14 week period to 4 October 2015. However, supermarket sales in New Zealand were more encouraging, growing 3.9% to NZ$1,559m.

Australian food and liquor sales up 0.4% to AU$11,064m

Like-for-like (LFL) sales in the quarter declined 1.0%, with store openings including; six net new supermarkets, three net new Dan Murphy's and seven net new BWS stores, helping maintain positive sales growth. During the quarter Woolworths invested AU$100m in lower prices, launched new marketing campaigns Price Drop and Low Price, Always, put more staff hours into its stores, looked to improve fruit and vegetable availability, reduced checkout queue times, refurbished 25 supermarkets and this week announced the relaunched of its loyalty scheme.

Petrol sales declined 27.9% to AU$1,331m

Petrol sales were heavily impacted by the 10.6% reduction in average fuel prices, a 2.3% decline in LFL volumes, as well as changes to the Woolworths Caltex alliance, whereby Woolworths no longer recognises sales from Caltex operated sites. On a more positive note, forecourt convenience store sales grew 10.0% in the quarter, with LFL sales up 7.2%. Strong promotions and a focus on seasonal products were given as reasons for the strong performance. One net new petrol site opened in Q1.

NZ Supermarkets continue to show resurgence

Despite low inflation (0.5%) and continued investment in lower prices, LFL sales grew 2.5% in Q1. The retailer continued to drive its Price Drop and Price Lockdown campaigns during the period, with an additional 595 products added to Price Lockdown. Three net new stores opened in Q1 and one store was refurbished.

Accelerated transformation will impact margin

Woolworths is working to address its sales slowdown and has decided to accelerate the work it is doing. As a result of the increased investment Woolworths predicts that H1 group net profit after tax will be in the region of AU$900m - AU$1.0bn, a decline of 28-35% compared to H1 2015.

Managing Director of Woolworths Food Group, Brad Banducci, commented, “We are resetting our Food business to ensure a sustainable leadership position and maintain strong returns to shareholders. We are focused on our strategy to get customers to put us first as we invest in price, service and loyalty.”