Woolies spends up to chase Coles

WOOLWORTHS will funnel more than $500 million into improving sales as it lags further behind supermarket rival Coles.

The company’s supermarkets division reported a disappointing 3.4 per cent increase in sales for the half year, markedly weaker than Coles’ sales growth of 5.3 per cent.

Woolworths has downgraded its full-year profit guidance and its director of supermarkets and petrol, Tjeerd Jegen, has resigned.

Chief executive Grant O’Brien said the profit forecast had been downgraded so it could invest more into reducing its food and grocery prices.

He said short-term profitability was being sacrificed for sustainable long-term growth and about $500 million in cost savings would partly fund supermarket investment.

“All our efforts will be on restoring sales momentum and continuing to deliver profit growth,” he said.

“In the short-term, our focus is on investment in cheaper prices and better service to customers.”

He said there was a perception among shoppers that Woolworths was dearer than Coles even though that was not true.

Woolworths revised its fullyear net profit growth to a range of 1.8 per cent to 6.6 per cent, compared to its original target of 4-7 per cent.

The company suffered a 3.1 per cent slide in its first-half profit to $1.28 billion due to costs associated with its efforts to turn around Big W.

But its underlying net profit of $1.38 billion did beat market expectations.

Big W’s comparable store sales dropped 5.4 per cent and its earnings before interest and tax (EBIT) fell 9 per cent on de- clining consumer confidence and ongoing transformation costs, Woolworths said.

Big W is still expected to return to profit in the 2016 financial year.

The company’s hardware chain Masters continues to struggle, despite a 28.5 per cent lift in sales. Masters made a $112.2 million loss, blowing out from the $71.9 million loss from a year ago.

CMC Markets chief equities analyst Ric Spooner said Woolworths’ plan to discount food and groceries even more had hurt investors’ confidence in the supermarket sector.