Woolworths back in the retail race

Brad Banducci’s mission to make Woolworths great again is taking shape.

Brad Banducci at the Woolworths Town Hall Store in Sydney yesterday. Picture: John Feder.

Brad Banducci’s mission to make Woolworths great again is taking shape after the nation’s biggest supermarket chain entered its strongest competitive position in eight years, although the loss-making Big W chain continues to detract from booming grocery sales.

But the Woolworths chief executive declined to claim victory in dragging the flagship Australian supermarkets arm out of a malaise that set in as far back as 2009, arguing that while his supermarkets had become price competitive, shoppers had yet to be convinced about its price leadership and there were long-held perceptions that it was not as cheap as arch rival Coles.

“We are looking forward to 2018 with guarded optimism,” Mr Banducci said yesterday after Woolworths posted a 3.6 per cent fall in full-year net profit from continuing operations of $1.422 billion as revenue rose 3.7 per cent to $55.47bn.

Reported profit was $1.533bn, a swing from the massive loss of $1.234bn last year due to billions of dollars in writedowns and impairments, mostly linked to its disastrous foray into hardware with the Masters chain and marking its first ever loss since it listed on the stock exchange in 1993.

Mr Banducci, the former Boston Consulting group executive who was appointed Woolworths boss in February last year, has set a frenetic pace in restoring Woolworths’ blue-chip credentials, focusing on its workhorse division, Australian supermarkets.

That showed up yesterday as Woolworths food sales rocketed ahead by 6.4 per cent on a same-store basis, easily trouncing Coles which last week reported fourth-quarter comparable sales growth of just 1 per cent.

“We are back to believing in what made us great in the first place … we saw a glimmer of that in 2017, much more to do in 2018,’’ Mr Banducci said.

“It has been a pleasing year rebuilding the foundations but we’re very realistic about what lies ahead. It’s nice to have a bit of wind behind us.”

At the supermarkets division, total food sales for 2017 rose 4.5 per cent to $36.37bn, although as Woolworths poured more than $1bn into lower prices and improving the in-store experience it constricted margins. Supermarket pre-tax earnings fell 2.4 per cent to $1.6bn.

Legacy issues continue to dog Woolworths and Mr Banducci’s desire to focus squarely on the retailer’s flagship Australian supermarkets arm. While he has sold off online and catalogue retailer EziBuy and finally closed the painful Masters chapter, the company’s underperforming merchandise chain Big W continues to blot Mr Banducci’s copy book.

Big W, which has churned through two chief executives in nearly as many years and countless transformation plans, posted a loss before interest and tax of $150.5 million, in line with guidance, as sales dropped 5.8 per cent to $3.598bn. Like-for-like store sales were 5.7 per cent weaker.

Caught between stagnant wage growth and intense competition from Wesfarmers-owned Kmart, Big W has lost more than $165m in the last two years. The last time it increased earnings was in 2013.

“Clearly we’ll be doing work around our range and our offer, making sure we give customers more choice, and we’ll be looking to refresh our stores to make sure they don’t look so dated and tired,” Big W managing director David Walker said. “But frankly, being focused on price and making sure customers start to trust our low-price offer again is our priority.’’

Late last year Mr Walker replaced Sally Macdonald, who quit after less than a year in the job.

Mr Banducci cautioned that the turnaround of Big W would be a “multi-year journey” and that while he hoped sales would stabilise next year he didn’t expect an improvement in the chain’s trading performance as it invested further to regain customer trust on price and improve the range.

Woolworths has done a deal with its former joint venture partner Lowe’s to acquire its stake in the closed Masters chain for $250.8m.

Woolworths increased its final dividend to 50c per share, up from 33c in 2016, to take its full year dividend to 84c, up 9.1 per cent. The final dividend will be paid on October 6.

The final dividend was partly fuelled by the improved trading performance in the second half, reduction in net debt and the $134m after-tax profit for its now-closed home improvement and hardware division, although that return is not expected to recur. The fatter dividends will be welcomed by investors who saw Woolworths slash its interim dividend last year by more than one-fifth to its lowest since 2006.

Shares in Woolworths ended down 12c at $26.94.

Mr Banducci has reaped the rewards of the Woolworths turnaround, more than doubling his remuneration in 2017.

According to the Woolworths annual report, also released yesterday, Mr Banducci took home $5.87m in fixed pay, short-term incentives and share rights.

Vertium Asset Management chief investment officer Jason Teh said a highlight of the result was the strong cash flow, while the food business had a strong turnaround.