Woolies boss cautious on profit target

Woolworths boss Grant O'Brien has shied away from promising anything better than 7 per cent profit growth this year until consumer confidence is restored and shoppers can forget about the federal election to focus on spending money at his stores.

Woolworths boss Grant O'Brien has shied away from promising anything better than 7 per cent profit growth this year until consumer confidence is restored and shoppers can forget about the federal election to focus on spending money at his stores.

But if shoppers were worried about political uncertainty or the economic outlook they certainly weren't showing it when visiting any of Woolworths' pubs, with its hotels division posting a 35 per cent kick in pre-tax earnings last year to make it the biggest earner for the retailer outside of its dominant supermarkets division.

Consumers drank, ate and gambled their way through nearly $1.5 billion worth of hotel services with the business now more profitable than its general merchandise banner Big W and its entire supermarket network in New Zealand.

Delivering the nation's biggest retailer's best profit result in two years yesterday, Mr O'Brien cautioned investors not to get too ahead of the fundamentals of the business, despite growing evidence his strategy to resuscitate its earnings and build a sustainable platform for growth was starting to work.

Mr O'Brien said the best shareholders could hope for was 4 to 7 per cent net profit growth this financial year, with even that conservative outlook a tough ask given the distraction of the election, fickle consumer confidence and intense competition, which was driving down food prices.

"Four to 7 per cent growth is no walk in the park for us, it means we have to deliver on the initiatives we have as part of our plan," Mr O'Brien said yesterday after Woolworths posted an 8 per cent rise in profit on continuing operations before significant items to $2.35 billion for the 2012-13 financial year. It was within guidance provided in July.

The retailer's profit was actually 6.1 per cent better based on a normalised 52 week year, or 24 per cent better to $2.26 billion at the bottom line.

He said for Woolworths to reach the upper level of his profit forecast for fiscal 2014 there needed to be a lift in consumer sentiment.

"For us to hit 7 per cent means we have to see a return of confidence in consumers to a level and we have to deliver on all our plans," he said.

Following his appointment as CEO of Woolworths in 2011, Mr O'Brien released a detailed review and overhaul of the business that rested on a return to the glory days of Woolworths when it easily trounced rival Coles with its string of 10per cent-plus profit gains.

"Today's exciting because it's a step towards attaining that, but I havent set a time frame on it. We have got our plans aimed at achieving that [10 per cent profit growth] and it's testament to the fact we believe this business can and will continue to grow under the strategies we are implementing at the moment," Mr O'Brien said.

Macquarie analyst Greg Dring said Woolworths would find it hard to reap 10 per cent profit growth in the current economic environment.

"Not with price deflation they can't," he said. "The single biggest issue is growth in a low-growth environment, and if you throw in low consumption growth with price deflation for the products you sell, its not going to happen."

Mr O'Brien said Woolworths was on the path to that target, built on improving food and liquor earnings and margins.

Its Australian food and liquor business, the workhorse of the group, boosted pre-tax earnings by 8.7 per cent to $3.199 billion. Its hotels arm had a 34.7 per cent earnings lift to $263.7 million, thanks to recent changes to gaming legislation and hotel acquisitions.

The struggling hardware division remained the main problem child of the retail group and as expected Woolworths' home improvement business, Masters, recorded a loss of $139 million during the year.

Woolworths announced a fully franked final dividend of 71¢ per share for a total full-year dividend of $1.33.

Shares in Woolworths rose 68¢, or 2 per cent, to $34.59.

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