Woolworths profit up 11%, announces $400 million share buyback

Supermarket giant Woolworths recorded an 11.4% increase in first-half profit and will launch a $400 million share buyback.

The positive result comes just days after the supermarket giant announced plans for the locations of 12 of its upcoming hardware stores.

Managing director Michael Luscombe said the company has reaffirmed its full-year guidance with sales growth expected to be in the upper single digits, and net profit to grow by between eight and 11%.

The grocery retailer recorded net profit of $1.09 billion for the 27 weeks to January 3, higher than the $983.3 million recorded during the previous corresponding period.

Group earnings before interest and tax rose by 11.1% to $1.68 billion from $1.52 billion. Sales, excluding petrol, rose by 6% to $27.2 billion, with a dividend announced of 53c.

The food and liquor division of the company saw sales rise by 6.8% to $18.14 billion, with petrol sales actually falling 9.5% to $2.8 billion due to lower prices.

Luscombe said in a statement the results were a good sign for the company, which has continued to grow despite cutting prices, and the figures are “a strong result given the economic challenges of cycling the prior year stimulus package”.

“While the Australian retail sector will need to cycle the prior year stimulus and will probably experience lower food inflation in the second half of this year, the prospects appear positive and improving for 2010 onwards,” he said.

”The work we have done and investment we have made over the past 10 years, which we continue to do, in improving our systems and streamlining our back-end processes, means we can deliver these benefits in a sustainable manner over the longer term.”
Meanwhile, the company said its share buyback scheme would be part of a broader capital management program.

“This program may in the future include a range of initiatives and will be assessed in light of growth opportunities, the capital markets environment and our focus on maintaining strong credit ratings,” the company said.

“Following completion of a $400 million on-market share buyback, Woolworths’ balance sheet and credit metrics will remain strong… We will retain sufficient capacity to invest capital and pursue growth opportunities to enhance shareholder value.”

The company is preparing for its first hardware stores, which are to be opened in a venture with US chain Lowe’s, with the first 30 stores to open in the next five years and a further 120 by 2014. The first 10 will be built in Melbourne suburbs, and will directly compete with industry leader Bunnings.