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A turnaround for Woolworths?

Christine St Anne  |  19 Jun 2015Text size  Decrease  Increase  |  

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Christine St Anne is Morningstar's online editor. Follow her on Twitter @MstarChristine

 

The departure of Woolworths (WOW) chief executive Grant O'Brien announced earlier this week was welcome by the market. Woolworths' share price rose by 2 per cent just shortly after the statement was released on the Australian Securities Exchange.

"The announcement wasn't surprising considering the challenges the company faces, particularly within its Australian food and liquor division," Morningstar senior equities analyst Gareth James says.

Food and liquor revenue growth has been slowing for some time and fell 0.7 per cent in the fourth quarter of fiscal 2015 -- the first absolute decline in a number of years.

Woolworths also announced a downgrade of net profit after tax for fiscal 2015 of about 1.8 per cent to $2.45 billion and one-off restructuring-related costs which will push reported profit growth down a further 11 per cent to $2.18 billion.

James says the profit downgrade figure "was not material" but that the 12 per cent fall in sales from the Big W division was disappointing. Nevertheless, Big W's contribution is just 3 per cent of group earnings.

For James, the incoming chief and board will have to focus on improving the food and liquor division, which is "far more important to group earnings".

O'Brien's departure and the outlook for Woolworths was also one of the key topics discussed at an event held by Livewire, a social media platform for investors and market professionals, on the day the announcement was made.

Speaking on a panel, Investors Mutual chief investment officer Anton Tagliaferro said it was not "impossible for the business to turnaround" despite a challenging business environment.

"Australia has a growing population and the business is one of the largest in the country -- these are all positives for Woolworths," Tagliaferro said.

"The negative, however, is that dynamics in the supermarket industry have now changed. Five years ago Coles was a basket case and Aldi's market share was very small. Competition is much tougher now."

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