Woolies to bat for farmers

Woolworths chief executive Michael Luscombe has pledged to support local farmers in the wake of the Queensland floods by avoiding the temptation to import lower-priced produce, even after a tough retail environment forced him to cut his full-year profit forecast.

The revised forecast — Woolworths now expects net profit growth of 5 to 8 per cent for 2010-11, down from 8 to 11 per cent — is the first time Mr Luscombe has had to cut earnings guidance since taking the helm of the country’s biggest supermarket chain four years ago.

“It was a half-year where we clearly had sagging consumer confidence . . . deflation across most, if not all except petrol, categories, (and) cooler, wetter weather for five out of the six months, ” he said. “(As a result) it became very obvious to us that due to the failure of discretionary retail to fire during that all-important Christmas period, we weren’t likely to get to that 8 per cent bottom end of our guidance.”

Mr Luscombe made the comments after reporting a 4 per cent rise in Woolworths’ total sales to $28.3 billion for the six months to January 2 and warning consumer confidence was likely to “remain low” for the foreseeable future.

Investors reacted savagely to the weaker-than-expected result, sending Woolworths shares down 71¢, or 2.6 per cent, to $26.76 in a stronger overall market. Deutsche Bank analysts had tipped sales growth of more than 5 per cent for the half, and noted in a preview that “we would be very surprised if the group was not on track to achieve its guidance”.

But there was some good news in the result for consumers, with Mr Luscombe noting grocery prices had continued to fall and were unlikely to rise sharply on the back of the floods.

Although Woolworths pledged to continue to source fruit and vegetables locally where possible, analysts suggested any rise in fresh produce where flooding had reduced supply was likely to be offset by price cuts on imported, dry goods.

Like-for-like sales across the Dick Smith business rose 4.1 per cent for the half, with the strong Australian dollar and intense competition crimping margins. Like-for-like sales at Big W fell 4.2 per cent. Comparable-store sales at the group’s Australian food and liquor division rose just 2.2 per cent.

Mr Luscombe warned it could take the group at least a year to calculate the total cost to the group of last year’s Christchurch earthquake and the recent Queensland floods.

Woolworths will hand down its audited first-half profit result — likely to show growth of 5 to 6 per cent — on February 25.

Wesfarmers, Australia’s biggest retailer and owner of the Coles, Kmart and Target retail businesses, will release its first-half sales figures on Monday.