Woolworths: Result 2012
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According to the headlines, Woolworths reported its first profit drop in 13 years today. Of course, that’s not quite the full story. Woolworths’ profit fell 15% because of a writedown of its Dick Smith assets, but that ‘news’ is six months old.
Excluding Dick Smith, which is up for sale, revenues rose 5% to $55bn. Underlying profit rose 4% to $2.2bn, which was in line with expectations. From underlying earnings per share of 178 cents, a fully franked final dividend of 67 cents was declared (ex date not yet known).
Price deflation and weak same-store sales growth over the 2012 financial year saw margin improvement in Woolworths’ food and liquor division stall. Thankfully the company’s liquor operation has been thrashing Coles, offsetting the weakness in food. New Zealand was the standout division, with profit rising 18%. The Masters rollout also continues apace; with 20 stores now operating, management was upbeat about sales expectations.
What was new was the announcement that management would increase the $300m Dick Smith writedown—taken at the half year result—by another $120m. Poorly positioned retailers can be difficult to sell, and Dick Smith is a prime example.
| Full year to 24 June* | 2012 | 2011 | Change (%) |
|---|---|---|---|
| Revenues ($m) | 55,269 | 52,746 | 5 |
| EBIT ($m) | 3,352 | 3,254 | 3 |
| Underlying net profit ($m) | 2,182 | 2,107 | 4 |
| Underlying EPS (c) | 178 | 172 | 3 |
| DPS (c) | 126 | 122 | 3 |
| Franking (%) | 100 | 100 | |
| * From continuing operations (excluding Dick Smith) | |||
So what’s the outlook for 2013? While Masters will generate another $80m of losses, higher profits from operating gaming machines in Victoria will provide a handy offset. But there’s some chance food and liquor margins will actually contract this year, even though deflation should be less of an issue.
All up, management is forecasting net profit growth of 3%-6% although, with an extra week in the 2013 year, reported growth might be a little higher. There’s little sign of improvement in same-store sales growth yet, and another year like 2012 could make even the 3% target a stretch.
The stock has run up significantly in recent months, which is why we downgraded a notch on 24 Jul 12 (Hold – $27.89). With nothing in this result to change our minds, we’re sticking with HOLD.
The model Growth and Income portfolios own shares in Woolworths.
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