Woolworths' earnings rise 24% year-over-year in 12 months ended in June, to AU$2.26B, the company's fastest growth since 2008, as company opened 73 grocery, liquor and gasoline outlets, doubled network of Masters hardware stores

SYDNEY , August 28, 2013 () – Woolworths Ltd., Australia’s largest retailer, increased profit at the fastest pace in five years as it opened on average one grocery store every five days and served more customers than the country’s population. Net income rose 24 percent to A$2.26 billion ($2 billion) in the year ended June, Sydney-based Woolworths said today, matching the average of six analysts’ estimates compiled by Bloomberg. That’s the company’s fastest profit growth since 2008, according to data compiled by Bloomberg.

Woolworths sold its money-losing Dick Smith electrical chain, opened 73 grocery, liquor and gasoline outlets, and doubled its network of Masters hardware stores in the year to reignite growth that spurred a tripling of its market value in the last decade. Net income climbed more than 10 percent annually for 11 years before the pace slowed to 5.1 percent in 2011 and profit fell last year, data compiled by Bloomberg show.

“It’s a good result on all the key criteria,” Jeremy Hook, investment director in Sydney at TMS Capital Pty which manages about A$250 million, said by phone. “We may be looking to add to some of our positions on the back of this.”

Shares of Woolworths rose 2 percent to close at A$34.59 in Sydney, their highest level since May 16. The stock extended its gain this year to 18 percent, while the S&P/ASX 200 index has advanced 9.4 percent.

Woolworths supermarkets and the second-ranked Coles chain owned by Wesfarmers Ltd. have cut prices of bread and milk to A$1 in recent years in a price war for a grocery market where they have a combined 80 percent share.

Price Squeeze

That’s squeezed milk and food producers including HJ Heinz Co. and Campbell Soup Co. Average prices in Woolworths’ grocery unit fell 2.9 percent over the past year, the company said.

“Competition is alive and well, and that’s evidenced by the fact that consumers have got a cheaper basket this year,” Chief Executive Officer Grant O’Brien told a media call after the results. “We had record numbers of customers coming into our stores and that’s evidence that customers are pleased with what they’re getting.”

Average weekly customer numbers, a measure of how many transactions are rung up in the company’s stores, rose 3.6 percent to 28.4 million, about 22 percent larger than Australia’s population of 23 million.

The typical customer visited the store 2.3 times each week, a number that was increasing, Tjeerd Jegen, director of the company’s supermarkets division, said on the call.

Supermarket Earnings

Earnings before interest and tax at Woolworths’ Australian food and liquor stores rose 8.7 percent to A$3.06 billion, the company said. At New Zealand supermarkets, the measure increased 5.2 percent to A$236 million.

The Australian result trailed the 13 percent Ebit growth rate that Wesfarmers reported for Coles. Net income at Wesfarmers rose 6.4 percent to A$2.26 billion in the year to June, the company said Aug. 15. Sales from Coles stores open at least 12 months have grown faster than the equivalent at Woolworths outlets for at least 14 straight quarters, according to data compiled by Bloomberg News.

“The supermarket operations will continue to improve” at Woolworths, Michael Simotas, an analyst at Deutsche Bank AG in Sydney, wrote in a note to clients July 30. A weaker Australian dollar will lift the cost of imports and start raising grocery prices, he said.

Ebit from Woolworths’ Big W discount department store rose 7.2 percent to A$191 million. Its hotels unit, Australia’s biggest operator of pubs, increased earnings 35 percent to A$264 million.

Excluding one-time items, net income climbed 6.1 percent during the most recent 12-month period, compared with a range of 5 percent to 6 percent the company forecast July 18. That measure will increase in a range of 4 percent to 7 percent in the current year, Woolworths said today.

--Editors: Lena Lee, Suresh Seshadri

To contact the reporter on this story: David Fickling in Sydney at dfickling@bloomberg.net

To contact the editor responsible for this story: Stephanie Wong at swong139@bloomberg.net

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