Woolworths posts $972.7m first half loss, names Brad Banducci as CEO

Woolworths has booked an interim net loss of $973m and tapped Brad Banducci to revive the ailing retailer.

Brad Banducci is Woolworths’ new CEO

Woolworths has named the current boss of its supermarkets arm Brad Banducci as its new chief executive, charging him with reviving profits at the nation’s biggest retailer.

The appointment came as Woolworths (WOW) today unveiled its first loss as a public company.

The struggling retail giant posted an interim loss of $972.7 million, down 176 per cent, as sales fell 1.4 per cent to $32.2 billion.

The Woolworths result was hammered by a massive $1.89 billion non-cash writedown flowing from its failed Masters hardware chain. After tax, the impairment charge is worth $3.01 billion.

Shareholders will feel the pain of Woolworths’ loss, with the interim dividend slashed by one third to 44 cents per share.

Woolworths also warned it was not expecting a significant improvement in like-for-like store sales at its core Australian supermarkets business in the second half of the year, with the grocery market likely to remain competitive and price deflation set to continue.

“Despite the financial performance, we are making progress in the rebuilding of Woolworths,” the company said.

“We have significantly invested in price, service and customer experience in Australian Supermarkets, appointed a new Group and BIG W CEO and announced our exit of the Home Improvement business.”

Woolworths shares were pummelled at the open, dropping 6.4 per cent to a nine-year low of $20.50.

The South African-born Mr Banducci, former boss of the company’s liquor division Dan Murphy’s, will replace outgoing boss Grant O’Brien.

Mr O’Brien will remain an employee of Woolworths until August, despite giving up all his powers as CEO today.

Mr Banducci, currently managing director of Woolworths Food Group, which takes in Australian and New Zealand supermarkets, will continue in that role until a replacement is found.

His appointment as CEO of one of Australia’s biggest companies follows an extensive six month search that included interviewing a number of international retail executives for the role.

The search for a new CEO, led by Woolworths chairman Gordon Cairns, comes as the retailer suffers falling earnings at its once powerful supermarkets arm, which drives around 90 per cent of group earnings.

Mr Cairns said Mr Banducci had 25 years of retail experience, including 15 years consulting to some of the world’s leading retailers as well as private equity experience in retail. He has been with Woolworths for five years, including his role leading the growth of Woolworths Liquor Group.

“This makes him uniquely positioned for this role,’’ Mr Cairns said. “He clearly understands the Australian market, has a total commitment to our customers and a great track record of growing valuable businesses and developing his people.’’

Since taking on the supermarkets arm of Woolworths more than a year ago, Mr Banducci has restructured the organisation, introduced a new loyalty program — which had to be tweaked after it fell flat with some customers — and rejuvenated its advertising, marketing and promotional strategies.

“I am a true believer in the potential of Woolworths and I am excited about our future. We are at our best when we are innovative and focused on the customer and winning their trust,” he said.

Mr Banducci joined Woolworths in 2011 after the acquisition of the Cellarmasters group, a wine direct retail and production company. Mr Banducci was CEO of that group from 2007 to 2011.

Woolworths’ net loss of $972.7 million for the six months ended January 3 follows a prior interim profit of $1.28 billion.

The writedown of the value of the Masters home improvement chain, which the company is closing down after failing to compete with rival Bunnings, weighed on the group’s results.

The $1.89 billion writedown, the biggest in Woolworths’ three decades as a public company, includes $1.46 billion related to the impairment of property, plant and equipment linked to its home improvement division. A further impairment of $547 million relates to Masters inventory as Woolworths attempts to sell it.

Woolworths plans to buy out the 33.3 per cent stake of its partner in Masters, the US chain Lowe’s, and either sell or liquidate the business, which includes more than 50 warehouse-style stores across Australia.

Woolworths and Lowe’s have ploughed about $3 billion into the Masters chain since 2011, hoping to capitalize on a booming housing market that has spurred spending on home projects.

But chain struggled to compete against Bunnings, owned by Wesfarmers, missing its target of breaking even within five years.

Woolworths saw an average price reduction of 2.1 per cent in food and liquor during the half year, as the company pours millions of dollars into investing in lower prices in a bid to attract shoppers.

Woolworths’ comparable sales in its supermarkets division fell 1 per cent over the first half of the year, following a 0.6 per cent decline in the last quarter, as the company continued to lose momentum against its rival chain Coles, owned by Wesfarmers. Financial results from Coles earlier this week showed a 4.3 per cent increase in like-for-like sales in the six months to December

Woolworths will pay an interim dividend of 44c per share, fully franked, 35 per cent lower than the prior half-yearly payout of 67c.

 

With Business Spectator