Why Woolworths is trying to hide its light under a bushel

Woolworths certainly broke with convention on Monday. It is rare to see a company lead with the bad news and hide the better and most important news in the last few sentences of a longish announcement.

Welcome to the new era where good news is bad news, especially if you are an Australian supermarket chain.

CEO of Woolworths Brad Banducci (pictured with his dog Juno) saves the good news until last.
CEO of Woolworths Brad Banducci (pictured with his dog Juno) saves the good news until last.

Such a contortion would damage the spine of any public relations expert.

There were several important bits in the Woolworths statement on Monday. So let’s begin, as Woolworths did, with the bad news: the company’s worsening performance in New Zealand.

After around three years of underperformance its Kiwi supermarket operations are still years away from the elusive turnaround hoped for by the company and its shareholders. So much so that Woolworths will write down the assets across the Tasman by $NZ1.6 billion.

While it is a big number, it is an accounting loss rather than a cash loss, so it shouldn’t ruffle too many shareholder feathers.

Woolworths has been forced to write down the value of its New Zealand business.
Woolworths has been forced to write down the value of its New Zealand business.Credit: Bloomberg

The fact that the New Zealand operations are under-earning is an important negative, but it is not the main game. Nor is the fact that Woolworths-owned Big W is also expected to produce earnings for the first half of 2024 financial year that are “materially below’“the same period last year.

Woolworths can absorb the earnings underperformance of these businesses if its Australian supermarkets division is holding up the group’s overall financial results.


That brings us to the news that was somewhat more hidden, that the Australian supermarkets division is producing what it describes as “solid” earnings.

If one adds the two challenged businesses and Australian supermarkets together the group is expecting earnings to increase by 2.8 per cent to 3.8 per cent, the midpoint of which is 3.2 per cent, so about $1.7 billion before interest and tax.

The Big W department store brand is owned by Woolworths.
The Big W department store brand is owned by Woolworths.

Given New Zealand and Big W will be a drag, the improvement in the food business will be greater than 3.2 per cent because it’s doing all the heavy lifting. So the earnings from Australian supermarkets could be up by roughly 6 per cent in the six months to December.

The overall result Woolworths is pointing to is still a little shy of analysts’ expectations, according to MST Marquee’s retail specialist Craig Woolford, who describes it as “solid” and Woolworths’ margins as being “still only slightly ahead of pre-COVID.”

If the Canberra lawmakers bother to pick through the details they could easily seize on an improvement in earnings from Woolworths’ Australian supermarkets division as a gotcha opportunity, evidence that our two largest retail chains are price gouging.

Any attack by politicians would come at a time when Woolworths’ chief executive Brad Banducci is powerless to stop them.

He has been ducking for cover since the New Year when politicians conflated the company’s decision not to stock Australia Day paraphernalia that didn’t sell with the company caving to a desire to be ‘woke’.

Opposition Leader Peter Dutton urged Australians to boycott the supermarket, a move which was bizarrely described as clever politics. But, in the end, Banducci caved to the political pressure, and issued an apology for downsizing his businesses’ Australiana merchandise.

Meanwhile, the solid contribution from Woolworths’ Australian supermarkets is fine but the result from the Woolworths group overall is nothing to crow about. The share price fell about 0.7 per cent in response to the announcement, so shareholders clearly don’t subscribe to the government’s view that Woolworths is earning too much money at the expense of its customers.

A Senate inquiry is due to begin this week into supermarket pricing and the bosses of both Coles and Woolworths will be challenged to justify their business models in evidence.

Additionally, the Australian Competition and Consumer Commission has been directed by the government to undertake a more comprehensive year-long examination on supermarket pricing practices and the competition landscape.

For its part the government is looking to do something about the cost of living crisis that is putting many Australians under financial pressure.

While the Senate inquiry and ACCC review is considered unlikely to uncover any smoking gun on price gouging (in much the same way as the previous inquiry by the ACCC) this level of scrutiny could sniff out other issues. They can be something of a crap shoot.

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Source: Thanks smh.com