Woolies defies critics with profit guidance

WOOLWORTHS has stuck to its guidance of growth of 4-7 per cent in net profit after tax despite a slump in its share price.

WOOLWORTHS has defied the market perception of its performance by sticking to its guidance of growth of 4-7 per cent in net profit after tax despite a slump of 14 per cent in its share price in the past month.

Company chairman Ralph Waters told the company’s annual general meeting in Brisbane yesterday that the retail market was increasingly competitive and that the company’s soft quarter sales had been reflected in the share price.

“The market appears to have drawn conclusions about the company’s outlook that the board does not share,” he said, before reaffirming the previous advice.

The company dealt with the issue of the short-term drop in the share price by pointing out that in the past three years, Woolworths had delivered total shareholder returns of about 50 per cent and its share price had increased by more than 30 per cent, which was in line with the ASX 200.

The market responded well yesterday, with Woolworths shares rising 2.16 per cent to close at $31.75.

Chief executive Grant O’Brien gave an upbeat address to shareholders, telling them that there was good progress in the online division and liquor retailer Dan Murphy’s, while the New Zealand supermarket operation was “delivering pleasing results”.

Mr O’Brien even saw an upside in the company’s troubled hardware division, Masters, which he said was “bringing real competition to the market”.

“While financial-year 2014 losses were higher than anticipated, we have established a solid foundation and are focused on transitioning from a start-up to a scalable, profitable business,” he said.

While acknowledging that the first quarter was soft, he said that the second quarter would rely heavily on the next six weeks — Christmas trading — and “like many retailers, we have started Christmas marketing and promotional programs earlier to strengthen the festive season’s trading outcomes”.

“These improved sales trends are pleasing, given the soft first quarter,” he said.

Several shareholders asked whether the Australian market might mirror the British experience, where aggressive cost-cutting by the likes of Aldi and Costco had led to profit writedowns among market leaders Tesco and Sainsbury.

Mr Waters said Aldi already had 300 stores in Australia and was growing, but the company had been in Australia for several years now, and its presence was “not new competition”.

He said stores in Britain were generally larger than in Australia and new floor space in Australia was growing at 4 per cent compared with 7 per cent in Britain.

“We don’t blindly say it couldn’t happen here,” Mr Waters said.

“But we do find that there are significant differences between what’s happened here and there.”