Woolworths shares fall as retailer cuts profit forecast

Posted by Nicole Eckersley on 25th January 2011

Woolworths logoShares in Woolworths Ltd dropped yesterday as the supermarket chain lowered its earnings forecast for the first half of fiscal 2011.

Woolworths said its net profit for the six months to 2 January would rise by 5% to 6%, below the forecast of an increase 8-11% that it issued in August.

CEO and MD Michael Luscombe said Australian consumers had cut back on spending compared to a year earlier, when the Federal government’s stimulus package had buoyed the economy in the wake of the financial crisis.

“Following the highly stimulated consumer spending levels caused by the Government’s stimulus package, consumers have reduced overall spending levels,” Luscombe said. “In addition, consumer spending levels have also been negatively impacted by higher interest rates, petrol prices, energy costs and healthcare costs.”

He added: “Overlaying these economic conditions is unseasonably poor weather in Australia in the last quarter, curtailing summer spending in December.”

In a trading update for sales in the 27 weeks to 2 January, Woolworths reported sales of $24.42 billion, an increase of 3.8% on a year earlier.

Woolworths’ domestic food and liquor sales for the half year amounted to $18.8 billion, an increase of 3.5%. Comparable-store sales increased 2.2%.

However, sales at the retailer’s Big W discounter chain declined 2.8% during the half. Comparable-store sales dropped 4.2% as a result of lower consumer spending and subdued sales due to the impact of colder weather during the peak Christmas trading period.

Nevertheless, Luscombe added: “This is a sound result and has been delivered in a period of extraordinary and challenging conditions across the retail sector in both Australia and New Zealand. Given these challenging conditions, it is pleasing that in Australian food and liquor we have maintained our strong market position in groceries and increased market share in fresh and liquor.”

Despite Luscombe’s comments, the retailer’s share price dropped 2.6% to $26.760 at close of trading in Australia today.

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