Australia's biggest supermarket chain has ended a 7.5-year losing streak to beat arch rival Coles on same-store sales growth in the December quarter, coming out in front for the first time since September 2009.
Woolworths has ploughed more than $1 billion to turn around its fortunes in the past year, and chief Brad Banducci said the momentum of the turnaround gave the business confidence it was "on the right track".
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Woolworths earnings report
Supermarket chain Woolworths has beaten rival Coles in sales growth for the first time in over 7 years.
The 1.9 per cent like-for-like sales growth in the first half is a big psychological win for Woolies. It was boosted by a 3.1 per cent comparable store sales growth rate in the second quarter, an improvement on a 1.2 per cent slide in the previous corresponding quarter.
Coles reported 0.9 per cent like-for-like sales growth in the second quarter, but it was coming off a strong comparable result of 5.3 per cent growth in the previous corresponding period.
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More work to do
Australian food sales were up 2.8 per cent in the half, but Woolworths' net profit from continuing operations fell 16.7 per cent to $785.7 million, dragged down by big losses at Big W which contributed to a bigger-than-expected fall in full-year net profit.
Gross margins increased by 0.5 of a per centage point to 27.88 per cent despite Woolworths' huge investment in slashing prices, an improvement it put down to material improvements in stock loss and better buying of stock.
Woolworths' 3.1 per cent comparable store sales growth beat analyst JP Morgan's growth forecast of 1.7 per cent, with sales having slid by 1.2 per cent in the previous corresponding period.
Woolworths' earnings before interest and tax in the December half came in 14.5 per cent lower at $1.3 billion, down from $1.5 billion a year earlier.
Mr Banducci said the company had made good progress on its key priorities during the half, but he warned there was more work to do.
"Sales momentum improved over the half for Australia food with comparable sales in December the strongest for the year, driven by strong comparable transaction growth and an improvement in items per basket," Mr Banducci said.
"Earnings before interest and tax declined by 13.9 per cent on last year, primarily impacted by the re-instatement of team incentive payments, team training and higher depreciation from our renewal and IT investments."
Big W's big woes
Big W continues to battle to make headway, slumping to a first-half loss before interest and tax of $27.2 million, more than $20 million worse than analyst estimates of about a $6.5 million loss.
The discount department store's trading earnings before interest and tax plunged 88.9 per cent to $8.1 million, dragged lower a $35.3 million asset writedown and a 6.3 per cent fall in comparable sales during the half.
Woolworths said the non-cash writedown was a result of asset impairments and a rise in provisions for onerous lease contracts.
Mr Banducci said Woolworths was currently reviewing the Big W strategic plan and it would be completed in the next few months.
Big W chief Sally Macdonald unexpectedly quit her role in November, a move that Woolworths chairman Gordon Cairns said would have no impact on the turnaround of the business or the timing of this strategy.
Despite the challenges of Big W and the competitive grocery environment, Mr Banducci said Woolworths was building on the momentum it had achieved over the past six months and working to restore "suitable growth in Australian food".
"We note however the second half will also be a period of continued investments in improving the store experience, depreciation from our renewal and IT investments and higher team incentive payments," he said.
Mr Cairns said he was "pleased" with the strong cash conversion achieved during the first half, which he said had contributed to a significant reduction in net debt compared to the prior year.
Woolworths will pay an interim dividend of 34¢ a share, down 22.7 per cent on the previous half.
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