Woolworths flags $1.5b write-down for New Zealand business

Woolworths’ New Zealand business has suffered more than expected, forcing the supermarket giant to write down its value and shrink its half-year earnings expectations in the face of weaker sales and tougher economic conditions.

The supermarket giant has spent NZ$13 million ($12 million) on rebranding dozens of Countdown stores to Woolworths but said more time was needed for the transformation to “reach full potential” amid lower spending and the impact of high interest rates.

Woolworths has been forced to write down the value of its New Zealand business.Credit: Brent Lewin/Bloomberg

The grocery retailer will record an impairment of NZ$1.6 billion ($1.5 billion) in its 2024 half-year results, a write-down from its current goodwill balance of NZ$2.3 billion ($2.1 billion), and it has reduced its half-year earnings expectations by 42 per cent.

The write-down does not affect the company’s confidence in Woolworths New Zealand’s potential or its transformation plans, chief executive Brad Banducci indicated in a statement to the ASX.

“While the short-term performance has been impacted by a variety of factors and the speed of improvement remains uncertain, we are seeing early positive signs from our Kiwi customers as our transformation gathers momentum,” he said.

The company’s share price sank 1.2 per cent in mid-morning trading as investors digested the update.

E&P Capital retail analyst Phillip Kimber said it was disappointing that Woolworths’ New Zealand business continued to be volatile.

“Woolworths has been struggling with its NZ business for a while now, with recent tough macroeconomic conditions also weighing on performance,” he wrote in a note.

The business’ earnings margins, which typically have ranged between 4.4 per cent to 5.5 per cent over the past 15 years, are expected to fall around 2 per cent for the 2024 year, he added.

Overall, the group’s unaudited earnings growth before significant items is expected to be between 2.8 and 3.8 per cent for the first half.

In the same update, Woolworths announced a change in its accounting treatment of its 9.1 per cent stake in spin-off drinks business Endeavour Group, saying a review had found it no longer wielded significant influence over the Dan Murphy’s operator.

“As a result, the Group will derecognise its equity accounted investment in Endeavour Group and recognise an investment in Endeavour Group as a financial asset, measured at fair value. This is expected to result in a loss of $209 million, which will be recognised as a significant item in the Group’s profit or loss based on an Endeavour Group closing share price of $5.21 on 31 December 2023,” the company said.

Endeavour was embroiled in a bitter corporate spat in the latter half of last year over the company’s leadership and performance, after major shareholder and pubs billionaire Bruce Mathieson campaigned for chairman Peter Hearl to lose his job. The dispute was resolved earlier this month after Hearl and Mathieson’s son Bruce Mathieson jnr both agreed to step down from their board roles.

Hearl had been Endeavour’s chairman since 2021, after the company demerged from Woolworths.

Woolworths voted against Mathieson’s push to install retail veteran Bill Wavish to the board, a move that was also not supported by three of the nation’s most powerful proxy advisers.

“We are very supportive of the board and management to create long-term value,” Banducci said at the time.

Woolworths will report its half-year results on February 21.

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