Woolworths may still suffer a New Zealand backlash. Photo
Woolworths, which is facing an investigation by the
Commerce Commission in New Zealand, is expecting a reduced
Craigs Investment Partners broker Chris Timms said the
first-half result, released yesterday, was solid without a
lot of ''wow factor''.
The group reported underlying earnings of $A2.05 billion
($NZ2.18 billion) for the six months ending December, up 5.9%
on the previous corresponding period. Reported profit of
$A1.32 billion missed expectations and consensus figures due
to higher tax and larger-than-expected interest expense.
The key food and liquor businesses again achieved
better-than-expected margin expansion, he said.
''Earnings before interest and tax growth from the division
is still well below the levels seen in the good old days but
it is the best it has been in a while.
"We expect the more discretionary businesses to remain a drag
but momentum from food and liquor should continue to build as
recently opened stores mature.
"We believe that should underpin share price performance
given it accounts for the lion's share of earnings.''
Craigs had reduced Woolworth's reported full-year profit
forecast by 1.1% to $A2.45 billion.
The forecast profit for the New Zealand supermarkets, which
include Countdown, had been reduced by 5% to $A260 million.
Mr Timms said it was too early to say whether the downgrade
would be extended further, following allegations by Labour MP
Shane Jones regarding pressure being put on Countdown
suppliers to backdate payments to the supermarket chain.
''But they could. First, we had the pressure being placed on
New Zealand suppliers through their products being taken off
Australian supermarket shelves. Then we had the claims by the
Labour MP regarding the payments and the pressure being put
on the suppliers.
''It will come down to dollars and cents. If there is any
sign Countdown is being blacklisted by consumers, they will
discount prices to get them back. That will hit Woolworths'
Grocery markets were ''very competitive'' and if Foodstuffs,
the operator of New World and Pak'n Save brands, saw an
advantage it would take it, Mr Timms said.
Morningstar analyst Tim Montague-Jones said from Sydney
Woolworths was taking the fight to a resurgent competitive
Coles with comparable sales adjusted for deflation up 7.1%.
That was ahead of Coles and reflected the focus on
promotional activity, with the company reinvesting $A400
million in price discounts to attract higher sales volumes.
Big W was in a process of reorganisation as Woolworths aimed
to redirect the long-term strategy of the brand towards
becoming Australian's leading multi-platform discretionary
The purchase of New Zealand's leading e-commerce company,
EziBuy, offered a strategic fit to accelerate the
transformation of the business, he said.