Australia’s biggest retailer, Woolworths, has stood by its troubled hardware business Masters and flagged a “customer first” approach, after announcing a rare fall in quarterly sales and about 800 job cuts.
Woolworths shares slumped 4.99 per cent on Wednesday, more than double the market’s fall, after reporting same-store food and liquor sales that missed expectations and “subdued” sales in April.
Despite a day-long strategy day with investors and analysts, it remained unclear whether Woolworths would sacrifice its world-leading margins to win back disaffected customers.
But admitting it had “lost sight” of the customer, chief executive Grant O’Brien said Woolworths was focusing on “investing in the customer sufficiently that we regain the sort of sales momentum we want.”
“If we address customers successfully … sales momentum comes. If sales momentum comes, margin comes. Margin is an outcome.”
Total group sales fell by 1.6 per cent to $14.96 billion, due to weaker petrol revenue on a business sale, weakness at its discount department store Big W, and just 0.2 per cent growth in same-store food and liquor sales in the third quarter.
Bruce Smith, portfolio manager at Alphinity Investment Management, said the supermarket sales were “soft” and the commentary about trading since then was concerning.
“Anybody expecting a quick fix from this day might be a little disappointed,” he said. The share-price fall partly reflected a “degree of likely earnings downgrades after the sales number.”
In February, Woolworths downgraded its full-year profit growth forecast to as low as 1.8 per cent and committed to investing at least $500 million on cutting prices and improving stores. Woolworths did not give provide guidance on the 2016 financial year and said it would not continue to give guidance.
On Wednesday, it said it would match or beat Coles’ prices, and try to deliver “an Aldi-level shop in terms of range and price.” But the company stressed that price was just one-third of the reason why a customer chooses to shop with it.
It also said it would cut an additional 400 jobs to the 400 recently shed, change its marketing and advertising in the near term, and set up a new division to improve its fresh food offering.
Rival Coles recently reported 3.8 per cent growth in same-store food and liquor sales in the March quarter, with total food and liquor sales up 5.4 per cent to $7.1 billion.
Woolworths also stood by its four-year-old hardware chain Masters, noting sales would be boosted by expansion in NSW and revamped stores – called Masters 2.0 – has showed promising signs. “We’re committed to it,” Mr O’Brien said. “It’s a really big market .. it’s a very profitable market, it’s a fast-growing market.”
Some analysts have called on Woolworths to concede defeat on the chain, particularly after Woolworths last year dumped its promise to profit from Masters in 2016.
Masters posted an 19.2 per cent year on year increase in sales to $217 million, thanks to store sales.
Australian retail sales grew by a lower-than-expected 0.3 per cent, seasonally adjusted, in March to $24.13 billion, official figures showed on Wednesday. This compared with 0.7 per cent growth in February and 0.5 per cent growth in January.
Extracted in full from the Sydney Morning Herald.