Woolworths Full Year Result: WOW rebound in Australian Food offset by losses at Big W

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Woolworths (WOW) returned to profitability in FY17, posting a $1.5bn profit for the 12 months ended 25 June 2017, thanks to strong sales momentum at its core supermarket chain late in the year. While the headline result is a huge improvement on the $1.2bn lost last year, due to billions in one-off/significant items/restructuring costs which held back the FY16 result. When not including these items, underlying profit eased by 3.6% to $1.4bn, missing expectations, as a rebound in its Australian Food business between January – June fell short of offsetting a loss of ~$150m at its BIG W department store chain.

 Results in recent years have been choppy as the company is in a period of transition and has been impacted by its exit from Home Improvement (including Masters and Home Timber & Hardware) and the sale of its 527 Woolworths-owned petrol stations to BP for $1.79bn. WOW lost more than $1.2bn in FY16 due to ~$4bn in impairments and restructuring costs associated with Big W and the failed Masters home improvement business.

 Australian Food – its biggest earner – posted a 4.5% lift in sales over the year with momentum building in the 4Q (7.2% growth). Earnings were held back by its $1bn investment in reducing grocery prices and improving services to better compete with rivals Coles and Aldi. Same-store sales are expanding at a faster than expected clip and well ahead of Coles.

 Endeavour drinks (Dan Murphy’s and BWS) delivered 4.3% growth in sales over the year. While EBIT improved by 3.9%, growth was held back by continued investment to ‘retain our leading position, in a low growth, competitive market’. Dan Murphy’s online operations stood out, with sales lifting by 25% over the year.

 WOW said its $150.5m loss in its BIG W business (vs $14.9m loss last year) was ‘extremely disappointing’ as it undergoes another turnaround plan for a business that has bled billions of dollars. WOW expects the department store to remain under pressure in FY18 as they continue to invest to improve the customer shopping experience.

 New Zealand Food sales growth improved by 2.1% while EBIT fell 1.4% as it ‘invested in price and service’ and expects profits in this business to be impacted over the short term due to continued investment. WOW Hotels division lifted profits by 11.7% over the year thanks to a drop in promotion activity which hit the prior result.

 Looking ahead, while is experiencing strong momentum across its Australian supermarkets in the current financial year, WOW said it expects ‘the trading environment to remain competitive in the year ahead’ and does not expect ‘sales growth to continue at the same rate as achieved’ in the final quarter of FY17. Australian Food sales growth for the past eight weeks ‘has been broadly in line with the FY17 second half growth rate’. WOW does not expect ‘an improvement in losses at BIG W in FY18’ as they continue to ‘invest across the business to restore growth’.

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