Woolworths, Australia’s largest supermarket chain, fell the most in more than six years after cutting its full-year profit forecast and reporting first-half earnings that missed estimates.
Shares in the Sydney-based company declined as much as 9.8 per cent, the most since October 2008, and were 8.8 per cent lower at A$30.95 at 10:12 a.m. in Sydney. Net income fell 3.1 per cent to A$1.28 billion ($999 million) in the six months ended 4 January, from A$1.32 billion a year earlier, it said in a regulatory statement today.
The result is a challenge to the strategy of chief executive officer Grant O’Brien, who’s pledged to restore more than a decade of double-digit earnings growth by increasing customer loyalty and building the Masters hardware chain. The company cut its forecast for full-year net profit growth and said that Tjeerd Jegen, its managing director for supermarkets and petrol, had resigned.
O’Brien is concentrating on “margin at the expense of volume and market share, which we believe is detrimental to the long-term success of the company,” Andrew McLennan, an analyst with Commonwealth Bank of Australia in Sydney, wrote in a 6 February note to clients. “Evolution in the structure of the supermarket industry is making it more difficult for Woolworths.”
Australian food inflation hit a three-year high of 3.5 per cent during the period as a fall in gasoline prices left households with more money to spend on other goods. The Reserve Bank of Australia also increased consumers’ spending potential earlier this month when it cut interest rates to a record-low 2.25 per cent.
Bloomberg News, edited by ESM
