Woolworths on long road to recovery

With the search for a new CEO underway, and questions about the retail experience of its board members, Woolworths disappointed the market with its full-year results to June 30, 2015.

The usually strong supermarket business suffered from further gains by rival Coles on the important factor of same-store sales growth.

Coincidental to the results announcement, Woolworths advised the market that Alistair McGeorge, headhunted last year to turn around BIG W, had left the company for personal reasons.

BIG W is trailing badly to the resurgent Wesfarmers Kmart division and attempts to set a range that resonates with enough consumers has failed to convince. Sales for the year were at $4.1 billion, a decline of 5.7 per cent.

Masters, unfortunately, is still making losses and the magnitude of the challenge ahead could be no more stark than comparison of Masters’ performance of $930 million with that of Wesfarmers powerhouse Bunnings, more than 10 times Masters’ size, on sales at $9.534 billion.

An added insult is that Masters posted a loss of $245.6 million, almost 40 per cent higher than the last 12 months’ loss.

Woolworths’ group sales of $60.7 billion were slightly down, after adjustment for significant items earnings before interest and tax came in at $3,322.5 million.

For the all-important food and liquor business, which generates more than three-quarters of Woolworths’ total revenue, sales came in at $42.1 billion for the year. This was a 2.3 per cent increase but just 0.7 per cent on a comparative store basis.

Sales in the fourth quarter suffered from higher than average price deflation, partly at Woolworths’ own making as the company continues to invest $500 million into lower prices promised by outgoing CEO Grant O’Brien last January.

Petrol sales for the year were $5.6 billion, a decline of more than 20 per cent on the prior 12 months. The decline in volume over the same period was less at 13 per cent. Woolworths says the decline is primarily due to changes to the Woolworths-Caltex alliance and declining average fuel sell prices.

However, Woolworths’ petrol division did manage to extricate growth in non-fuel categories with total merchandise sales for the year increasing 9.3 per cent or 6.2 per cent for same-store sales.

The gross margin for food, liquor and petrol as a unit increased by 51 basis points due to a change in the sales mix away from petrol to higher margin food and liquor operations. When measured separately, the food and liquor gross margin declined 53bps.

In the aftermath of the result, long-time FMCG specialist Gordon Cairns has been appointed Chairman and will oversee the selection process for Grant O’Brien’s replacement.

A new senior executive team has been installed in the supermarket division, as well as a new structure to manage Woolworths’ own-label products.

While there was a positive commentary from Woolworths with the results announcement, there was also a note of caution on expectations of rapid improvement. It is, they say, a longer-term project.

Gordon Cairns appointed Non-Executive Director and Chairman

Mr Cairns’ appointment became effective on Tuesday, with Ralph Waters retiring from the Woolworths board as Chairman and Non‐Executive Director on the same day.

Mr Cairns has extensive retail and FMCG experience as the former CEO of Lion Nathan as well as having held senior marketing, operations and finance roles at PepsiCo, Cadbury and Nestlé.

He is also currently Chairman of Origin Energy and Quick Service Restaurant Group, Director of Macquarie Group, Macquarie Bank and Non‐Executive Director of World Education Australia.

Mr Cairns previously held the roles of chairman of David Jones and Rebel Group, and was also a director of The Centre for Independent Studies and a director of Westpac Banking Corporation.

Mr Cairns said he is honoured to be appointed to serve as Woolworths Chairman.

“It is a company that has daily relevance to most Australian and New Zealand families, whether they are shareholders, customers or employees,” he said.

“The most immediate issue is to identify new leadership to take the business forward. The CEO search process has been underway since June and is progressing well.

“Ralph Waters’ decision to retire has facilitated board renewal and allows me to participate in the CEO search process. I acknowledge and thank him for his strong contribution over the past four-and-a-half years.”

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