Brad Banducci in $4bn about-face with Woolworths; 500 jobs to go

Woolworths boss Brad Banducci will sack 500 staff and force shareholders to accept more than $4 billion in writedowns.

Brad Banducci is battening down the hatches at Woolworths. Picture: Brett Costello

Woolworths (WOW) boss Brad Banducci will force shareholders in the troubled supermarket giant to swallow more than $4 billion in writedowns as he acts to stem haemorrhaging profits by abandoning former management’s addiction to aggressive new store rollouts, dumping poor acquisitions and sacking 500 support staff.

In one of the biggest and cost­liest shake-ups at Woolworths in three decades as a public company, the former Boston Consulting group executive has wasted little time since his elevation in February to chief executive and will set about undoing most of the work of the past two executives to occupy his office.

Unveiling yesterday his plan to resurrect flagging sales, which together with $4.2bn in impairments and writedowns will plunge the nation’s biggest retailer into the red this financial year, Mr Ban­ducci has taken decisive action to win back shoppers who have bypassed his supermarket check-outs for rival Coles and German discounter Aldi.

Woolworths’ aggressive store expansion plan will be sliced in half, with the 90 new supermarkets slated for opening over the next three years to be cut to 45. When Aldi is on the march, ramping up its store openings to record highs, especially as it pushes into South Australia and Western Australia, Woolworths will also close 30 underperforming stores before the end of lease terms, triggering costs of $196 million. Another 34 poorly run Woolworths supermarkets are also on death row.

A razor will be taken to its loss-making general merchandise outlet Big W, costing $151m in restructuring costs, with the business fully separated from its ill-fated acquisition of New Zealand-based online retailer EziBuy. That barely profitable unit will be hit with impairments of $309m and put up for sale.

EziBuy, bought under the watch of former CEO Grant O’Brien only three years ago for $306m, is now worthless.

Mr Banducci is also busy extricating Woolworths from the ­calamitous decision by former CEO Michael Luscombe to pour billions into creating the Masters hardware chain.

Meanwhile, Woolworths will move 1000 employees from the centralised group office back into the operating businesses, cutting 500 roles from the support office and supply chain while new metrics such as sales per square metre and return on funds employed will be introduced as key long-term performance indicators.

“We have been working very hard over the last five months to just get some clarity into the business and what you are seeing ­really is work we have already done to get focus into the business and absolutely what is required,’’ Mr Banducci told The Australian yesterday.

“It is about putting the right ­operating model into the business so we can drive the right culture ... to drive sustainable sales growth ... so it should clearly help us accelerate the transformation inside Woolworths.”

Already saddled with $3.25bn in impairment charges this year flowing from its disastrous expansion into hardware, Woolworths yesterday conceded it would throw another $959m in fresh restructuring charges on the pile to ring up the costliest year for investors in Woolworths’ 23 years as a public company.

Woolworths’ shares yesterday enjoyed their strongest one-day gain in nearly 20 years, with the stock closing $1.85, or 8.24 per cent, higher at $24.30.

However, fund managers maintained that the rally was not triggered by investors warming to the restructure or bullish hopes of an earnings bonanza, but rather short-sellers covering their positions and taking profits.

Bruce Smith, portfolio manager at Alphinity Investment Management, said it could be optimistic to think that the worst was over for Woolworths.

“Over the last couple of years you could have thought the worst was over many times. This time is the share price suggesting the worst is over, or is it just short covering? What they are doing is quite sensible really, looking at the store network, seeing which shouldn’t keep going and closing them,” Mr Smith said.

“It’s something we haven’t seen for a while from Woolworths and I think it just makes sense: if you have a store that is losing money or earning a sub-economic return then you review it.”

Mr Smith said Woolworths was striving to return to the golden era when the company was the leader in the $90bn grocery sector and strung together year after year of rising profitability.

“They want to get back to the good old days when they were earning high returns from a beautifully operating business that was in a ‘virtuous double loop’, as previous Woolworths management called it,” he said. “You have strong sales which drives operating leverage, give a bit to customers, some to shareholders and just keep doing it over and over.

“In the last few years it’s been more of a vicious double loop. But they need to deliver some positive sales numbers, and there’s no suggestion of that happening in this release.”

Credit Suisse retail analyst Grant Saligari said the actions taken to slow supermarket store rollouts, close some stores and concentrate capital on accelerating refurbishments were likely to be favourable to earnings.

“The initiatives are all sort of textbook initiatives of how you would reinvigorate this business,’’ Mr Saligari said.

“It is a competitive supermarket industry, little doubt on that, but I think Woolworths’ destiny is mainly in its own hands.’’