Supermarket giant Woolworths has posted a massive 12.5 per cent slump in its full-year net profit to $2.15 billion and appointed a new chairman.
In an industry once considered ‘defensive’ for its relatively stable returns, the result is its worst for the supermarket and retail giant since 2012.
Woolworths said the fall in profit was largely driven by a string of write-downs, with net profit before one-off costs coming in at $2.45 billion, roughly in line with last year.
Those write-downs included: $148 million in general merchandise inventory relating to Big W; $199 million in “transformation costs” including professional services and food, liquor and petrol inventory write-downs; redundancy costs of $43 million; and property losses of $36 million.
However, the company’s revenue also fell 0.1 per cent to $61.15 billion, and sales growth for its core food, liquor and petrol business was just 2.1 per cent over the second half of the financial year.
The company said average prices in its supermarkets fell by 5.2 per cent in the final quarter of 2015, and 2.8 per cent over the past year as a whole, as increased competition forced it to lower prices and offer cheaper products.
Analysts from Morgan Stanley said Woolworths is struggling to increase the volume of sales to offset lower prices.
“Woolworths has yet to properly address price perceptions as fourth quarter volume trends haven’t improved which is critical to stabilise Australian food and liquor EBIT [gross profit] margins,” they wrote in an initial reaction to the result.
The analysts also noted that the company’s “non-food businesses missed expectations badly”, with Masters losses accelerating and Big W and hotels well below Morgan Stanley’s forecast.
Woolworths chief executive Grant O’Brien had already announced his resignation in June, but continues to run the business as the search for his replacement continues.
The company’s chairman, Ralph Waters, is now also stepping aside, to be replaced by former David Jones chairman and current Origin chairman Gordon Cairns.
Mr Cairns said finding a replacement for Grant O’Brien is his priority.
“The most immediate issue is to identify new leadership to take the business forward,” he said in a statement.
“The CEO search has been underway since June and is progressing well.”
Woolworths is paying a 72 cent a share fully-franked final dividend, the same as last year’s.