Woolworths increases sales but predicts profit slump

Woolworths records sales of $28.3 billion, but natural disasters and uncertain economic conditions tipped to hit bottom line

By Brad Gardner | January 24, 2011

Woolworths has recorded $28.3 billion in sales, but natural disasters and uncertain economic conditions are tipped to bite into its bottom line.

Woolworths CEO and Managing Director Michael Luscombe today unveiled a 4 percent increase in the retailer’s sales for the first half of the financial year.

While Woolworths’ full year net profit is expected to increase by 5 to 8 percent, the figure has been revised down from 8 to 11 percent.

"Woolworths operations have experienced two significant natural disasters, an earthquake in New Zealand and the recent floods in Australia," a statement from the company says.

"Given the complexity of these insurance claims a clear view of these costs could take many months to complete and will impact in the second half."

Woolworths says consumer confidence and spending levels are expected to remain down in the second half of the year as families grapple with inflation and interest rate rises.

"In Australia, consumer spending has tightened with the absence of flow on effects of the Australian government stimulus experienced in the prior year, with increased individual savings levels, four interest rate increases, including the unexpected November increase and sharp increases in utility costs," Luscombe says.

Woolworths opened 12 new supermarkets during the first half of the financial year, taking its number of stores to 832. Another 12 Dan Murphy’s stores opened, taking the total to 133.

The supermarket division led the way in sales during the first half of the year, recording an almost $1 billion increase to $23.9 billion.

"This is a sound result that has been delivered in a period of extraordinary and challenging conditions across the retail sector in both Australia and New Zealand," Luscombe says.

Petrol sales increased by 5.9 percent to $2.9 billion, with Woolworths attributing the rise to higher prices compared with the previous year.

"During the half year, nine petrol canopies were opened taking total sites to 570, including 132 alliance sites," the company says.

However, Woolworths’ Big W brand suffered a 2.8 percent decline in sales due to lower consumer spending and a fall in the price of home entertainment goods and clothing.

"The primary cause of the price deflation has been the stronger Australian dollar with cost price reductions being passed on to the customer. Price deflation is expected to continue in the second half," Woolworths says.

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