The share price of supermarket retailer Woolworths Limited (ASX: WOW) is around 3.5% higher at $22.65 in afternoon trade on Friday, reversing earlier losses. The share price movements are being driven by today's release of the group's interim profit results.
Now that Woolworths has taken its medicine and written down the value of its ill-fated attempt to create a competitor to Bunnings, owned by Wesfarmers Ltd (ASX: WES), the board and management no longer have the hardware division to distract them and they can get back to focussing on revitalising the all-important supermarket business.
That makes the results from the Australian supermarket division the key focus today, rather than the headline loss caused by the now discontinued hardware business.
Here are the figures which really matter…
- Food and liquor sales revenue increased 0.7% to $22.3 billion; same-store-sales fell 0.6%
- Food, liquor and petrol earnings before interest and tax (EBIT) fell 31.7% to $1.3 billion
- The food and liquor margin declined by 1.62%, overall gross margin declined 0.55%
- Cost of doing business increased 1.67%
- EBIT to sales margin fell 2.22%
- Return on average funds employed (ROFE) slumped 15%
- 42 supermarket refurbishments were completed
- A further $150 million invested in lowering prices for customers
- Customer service was improved through the addition of 100,000 team hours per week
Outlook
While management has admitted that there is plenty left to do, investors today appear to be betting that the company is now on the right path.
Here's what management had to say about the group's outlook:
"Despite the financial performance, we are making progress in the rebuilding of Woolworths. 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 from the Home Improvement business."
"We are not anticipating a significant improvement in comparable sales in Australian Supermarkets in the second half with the market likely to remain competitive and price deflation likely to continue. We currently expect an EBIT margin in FY16 in Food, Liquor and Petrol of approximately 5% reflecting a seasonally lower margin in H2'16, continued deleverage as we continue on the journey to restore sales momentum and an incentive plan for our staff aligned to transformation of the business."
