New Woolies chief Brad Banducci starts repair

New Woolworths chief Brad Banducci has vowed to reignite his flagship supermarket business, taking the fight to Coles.

New Woolworths Supermarkets CEO Brad Banducci at Woolworths in Bella Vista Sydney, after the supermarket announced a 1 Billion dollar loss. Pic Brett Costello

Woolworths chief executive Brad Banducci has vowed to reignite his flagship supermarket business, taking the fight to arch rival Coles by cutting prices and luring back shoppers through a better experience that covers everything from lighting to more trolleys out the front of the store.

But his mission to win back the earnings momentum at Woolworths will begin from a shattered base after the retail major yesterday unveiled a first-half deficit of $972.7 million, its first loss in 23 years.

Weighing down the result was more than $3 billion in writedowns from its disastrous foray into hardware under the Masters retail experiment.

And with Woolworths chairman Gordon Cairns warning that the retailer’s turnaround, which is now in Mr Banducci’s hands, “will be three to five years, not be three to five minutes’’, investors will have to wait for any meaningful profit growth.

That dire outlook was underlined yesterday when Woolworths also effectively issued its latest profit warning, saying that it did not anticipate a significant improvement in like-for-like sales at its Australian supermarkets in the second half with profit margins for the full year to fall to 5 per cent, against just over 7 per cent in 2015.

Shareholders are to feel the pain directly in the meantime after their interim dividend was slashed by a third.

Worse still, the Australian ­supermarkets arm, which for the past year has been run by Mr Banducci, continued to cede sales and profits to its competitors, chiefly Coles and German discounter Aldi, despite more than $350m poured into lower prices and flooding its stores with extra staff to help customers.

After a six-month global search, the South African-born Mr Banducci was a surprise choice to lead the retailer, with many investors anticipating Mr Cairns would look outside the organisation for a “change agent”.

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

Mr Cairns said Mr Banducci’s 25 years of retailing experience and private equity experience made him “uniquely positioned” for the role.

Even so, investors say the incoming boss will have his work cut out. At almost every pillar of the struggling Woolworths empire during the December half earnings went backwards, led by a 31.7 per cent slump at its workhorse Australian food, liquor and petrol business and joined by profit slumps across Big W, hardware and hotels. Only its New Zealand supermarkets business managed a profit gain for the half.

“There is an awful long way to go,’’ said Mr Banducci yesterday after his first act as chief executive was to hand down Woolworths’ worst set of accounts since it floated on the ASX in 1993.

Woolworths posted a half-year loss of $972.7m, marred by a 1.4 per cent decline in sales to $32.21bn.

The reason the bottom line was drenched in red ink was the decision to book non-cash impairments of just under $1.9bn against its Masters hardware division, which is in the process of being sold or shut down completely if a buyer can not be found. The loss-making hardware arm triggered a much bigger than anticipated $3.2bn pre-tax write-off.

Shares in Woolworths initially slumped nearly 3 per cent to a 10-year low of $20.50 before a late rally that saw it end up 75c, or 3.4 per cent, at $22.64. The first-half dividend was sliced to 44c a share, from 67c, maintaining the company’s 70 per cent payout ratio.

At Big W, which is also a problem for the group, sales fell 3.9 per cent as earnings dived 38.7 per cent to $67.3m.

The biggest source of concern to investors was the underperformance of its supermarkets, which account for about 90 per cent of group earnings. Mr Banducci moved quickly yesterday as the new CEO to assure investors and shareholders that he would help return Woolworths supermarkets to their halcyon days with a better focus on prices, promotions, marketing and the in-store experience for customers.

He said Woolworths was starting to win back budget and mainstream customers.

More than $350m invested in lower prices was helping.

“Price is not the only thing though. We have been very clear we need to focus on getting our customers to put us first,’’ Mr Banducci said. “The shopping experience itself is also increasingly important, as you know the average Australian shopper is time-pressured and really the speed of actually getting through our store is increasingly important, so we have been investing in parallel with prices on service.’’

He said Woolworths would also invest in better lighting at its stores, more trolleys and revamp its ticketing that promotes prices and sales.

“Presumably it will take at least two years to make a material difference,’’ said Donald Williams, of Platypus Asset Management.

Credit Suisse analyst Grant Saligari said Woolworths and its new CEO were “saying a lot of the right things’’.

“It’s a matter whether you walk the talk,” Mr Saligari said.