Woolworths has outperformed Coles in sales and earnings growth, three years after it started spending $1 billion in slashing food prices and improving service.
The supermarket giant’s crucial comparable food sales rose 4.9 per cent for the first half of 2017/18 compared to the same period a year earlier, with growth particularly strong at 5.1 per cent in the second quarter.
The half-year performance far outpaced that of rival Coles, which on Wednesday recorded comparable food and liquor sales growth of 0.9 per cent for the half and 1.4 per cent for the second quarter.
In the past year, Woolworths’ sales growth has beaten Coles, albeit at a cost of lower earnings growth.
But Woolworths Australian supermarkets’ earnings rose 11.1 per cent to $901 million during the half, while Coles had a 14.1 per cent fall in earnings to $920 million.
Woolworths Group chief executive Brad Banducci, who led the supermarkets division before becoming chief executive in March, 2015, said the growth was good progress and an early sign of the group’s transformation.
“The key is for us is to sustain this progress in the second half,” Mr Banducci said.
He warned, however, that food sales growth may moderate in the second half of the year, while the “unbelievably intense” price competition in the past three years is expected to continue.
Woolworths also has more work to do in luring “young families” who typically buy more in one shop back to its stores, Mr Banducci said.
“The key for us is our everyday low price program,” he said.
“That program is to give those young families certainty on everyday items and we have seen dramatic growth in the size of that program in the last six months.”
Mr Banducci began cutting Woolworths food prices in 2015, spending about $1 billion over two years on significantly slashing prices and improving customer service.
The group’s first-half profit jumped 37.6 per cent to $969 million in the 27 weeks to December 31 and group revenue rose 3.8 per cent to $30 billion, driven by strong sales growth from its supermarkets, Dan Murphy’s, BWS and the group’s hotels and poker machines arm.
Despite the solid numbers, shares in Woolworths dropped 2.6 per cent to $26.92 on Friday.
Investment bank Citi’s equities sales director Karen Jorritsma said the market was concerned about Woolies’ cost of doing business outpacing revenue growth.
“People have been aware for some time that Woolworths has been doing well, based on feedback, and today’s numbers were in line with expectations,” she said.
“But the cost of doing business is rising faster than sales growth and the market is a bit caught on where Woolworths will go in terms of operating margin.”
The group’s troubled discount department store BIG W made a $10 million loss in earnings before interest and tax in the half, better than the $27 million loss it made a year ago.
BIG W’s full-year loss is expected to be in the range of $80 million to $120 million, also better than the $150.5 million loss made in the prior year.
WOOLIES DELIVERS STRONG HY RESULTS:
* Profit up 37.6pct to $969m
* Revenue up 3.8pct to $30b
* Fully franked interim dividend up nine cents to 43 cents
* Supermarkets earnings up 11.1pct
* Liquor division’s earnings up 2.5pct
* Hotels and poker machine earnings up 17.1pct
* BIG W loss $10m v. $27m