Woolworths pleased with NZ supermarkets

Australia's Woolworths Ltd today expressed satisfaction with its New Zealand supermarket business, particularly in the second half of the year.

The company's New Zealand Supermarkets, which include Countdown, Foodtown and Woolworths stores, notched up annual earnings before interest and tax (Ebit) of $NZ194.9 million, up 2.8% from last year.

The previous year had 53 weeks, so the rise is 4.8% if a 52-week comparison is used.

"Particularly pleasing was the improvement in the second half of the year, with trading Ebit increasing 17.3% over the second half last year and comparable sales in the last quarter increasing by 5.5%," the company said.

The company competes with Foodstuffs, a co-operative which runs New World, Pak'n'Save and Four Square stores.

Foodstuffs and Woolworths together have about 96% of the grocery market and they each have blocking stakes in general merchandise retailer The Warehouse.

In Australian dollar terms the Ebit of Woolworths' New Zealand supermarkets was $A153.9 million, down 9% on last year, or down 7.4% on a 52-week comparison.

Sales were $NZ4.96 billion, up 3.9% on a 52-week comparison. The gross margin rose three basis points to 21.9% and the company attributed this to improved buying.

Woolworths bought Progressive Enterprises in late 2005 and said then it would take three years to put the supermarkets in a competitive position.

It said today that the repositioning of the business was on track but "there remains much to do".

The work programme so far has included putting Australian supermarket systems in place, overhauling work practices, harmonising buying terms, increasing the focus on fresh product in stores, introducing private labelling, improving the supply chain and refurbishing stores.

The company said it had 23 sites in the pipeline in New Zealand with three opening in 2010.

One new Countdown store and two franchise stores were added during the year, increasing the company's selling space by 2.5%.

"There is a solid opportunity to add additional trading space over the next five years with new stores and additional trading space from our refurbishment programme, with 72 of our supermarkets being less than 2000sq m," the company said.

"Overall New Zealand has a balanced result in an economy that has had five quarters of GDP decline," Woolworths said.

The cost of doing business as a percentage of sales remained flat.

"This is a good outcome given the increases in the minimum youth wage and increased post-retirement payments, over and above the minimum obligation under the Kiwisaver scheme."

Average inventory levels were up 3.8 days on last year. The company said significant effort was going into improving the inventory position of New Zealand supermarkets.

The overall return on New Zealand supermarkets exceeds the company's weighted average cost of capital after tax when taking into account harmonisation of buying between Australia and New Zealand and a restructuring of financing.

Overall Woolworths reported a 12.8% rise in annual profit and forecast earnings growth of up to 11% this year.