Woolworths tipped to report heavy loss on back of restructuring, Masters exit

Analysts says Woolworths’ turnaround under CEO Brad Banducci will take longer and cost more than expected. Photo: Louie DouvisWhen Woolworths reports its full-year results on Thursday, expect to see a loss of about $1 billion, analysts say, after restructuring costs and its exit from the disastrous Masters hardware business.
Nanjing Night Net

Credit Suisse analysts say that with a restructuring charge of $960 million and its exit from the Masters Home Improvement business being treated as a “discontinued operation”, total impairments could hit $2.7 billion. That could leave Woolies with a statutory loss of around $1 billion.

Woolworths’ major shareholders have been impatient for Australia’s biggest supermarket chain to stitch up a deal for the disposal of its hardware assets. The company is expected to make some sort of announcement as part of its full-year results.

Woolworths chief executive Brad Banducci in May unveiled a strategic review to turn around the company’s declining supermarket sales and stop it falling further behind rival Coles.

On Wednesday, Coles’ parent company Wesfarmers reports its results. Meat sales over the past 12 months have played a significant role in supporting the company’s broader fresh sales results but recent stock shortages will potentially hurt comparable sales growth in the first quarter of the new financial year.

Coles had been battling to get fresh food back on the shelves after more than 640 workers walked off the job at its stores earlier this month.

For both major retailers, the bigger threat is Aldi’s aggressive expansion. The German supermarket giant has managed to reduce Coles and Woolworths’ share of the lucrative grocery market from 75 per cent to closer to 70 per cent.

All up, 87 major companies are due to report this week – the biggest of the August profit season. Fortescue reports on Monday, Oil Search, Scentre Group and Healthscope on Tuesday, while on Wednesday Wesfarmers is joined by Boral and Westfield in giving result updates.

On Thursday, apart from Woolworths, expect profit figures from Amcor, Perpetual and S32, and on Friday the highlights are Harvey Norman and Coca-Cola Amatil.

AMP Capital head of investment strategy Shane Oliver said overall profits look to have fallen 8 per cent in financial year 2015-16 thanks to weakness in resource profits following a tough period for commodities markets.

But Mr Oliver was more optimistic on the coming financial year, saying the listed corporate sector was “on track for a return to growth in 2016-17 as the slump in resources profits reverses and non-resource stocks see growth”.

Investors will also likely continue to ponder the resilience of the Australian dollar, which eased last week but looks well supported by the global search for yield – Australia’s cash rate of 1.5 per cent, while historically low, remains relatively high across developed economies.

A key influence is the expected pace of monetary tightening in the world’s largest economy.

Over the past few weeks US Fed members have been talking up the odds of a rate hike, but thus far foreign exchange traders “remain unimpressed”, BK Asset Management currency strategist Boris Schlossberg said. “Few players [are] factoring a hike in December, much less September.”

Commonwealth Bank of Australia chief currency strategist Richard Grace believes the Aussie dollar, which fetched 76.25 US cents on Saturday, could lift as high as 78.4 US cents in the coming weeks, thanks to a “benign” Australian economic environment and as the terms of trade stabilises.

“However, by year-end another RBA rate cut and another Fed rate hike should bring [the dollar] back to 73 US cents,” Mr Grace said. 

Economists will begin piecing together the puzzle of how the domestic economy has performed over the three months to June, with quarterly construction work data due late Wednesday morning.

The June quarter national accounts are due on September 7. “Residential building approvals and commencements data suggest housing investment is likely to have pushed higher to a new record level,” over the three months, ANZ economist Daniel Gradwell said. But continued weakness in mining-related engineering construction is expected to drag overall activity lower again.

On Wednesday morning skilled vacancies figures are also released.

This story Administrator ready to work first appeared on Nanjing Night Net.