Woolies hopes for return to profit

Woolworths is forecasting a return to profitability this year despite a challenging Christmas.
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Woolworths is forecasting that its retail business will return to profitability this year despite a challenging Christmas.

The store said it expects to exceed last year's profits of £21.8 million in the full year and meet City expectations of between £25 million and £29 million.

It experienced a 3.2 per cent decline in like-for-like sales at its retail business for the 49 weeks to 12th January, although total group sales increased by 11.2 per cent in the period.

The like-for-like sales fall was most pronounced in electrical products, where fierce discounting occurred between high street rivals.

Lower sales of electrical goods accounted for half of the reduction in like-for-like sales, as Woolworths sold fewer flat-screen televisions and PCs than in the previous year.

Music sales also fell by about 20 per cent, year on year, in line with the market. Stores devoted space previously given over to music to computer games, where sales of hardware, such as Nintendo's new Wii games console, were strong.

Trevor Bish-Jones, chief executive of Woolworths, said: "Christmas was a very challeging time for the group. However, in spite of volatile and highly competitive markets, all parts of the business took steps forward.

"The objective of chasing unprofitable sales is vanity, but profit for us is sanity."

However, Bish-Jones refused to discuss restructuring the group, now that profitability of its retail core is in sight, saying that discussions of that nature would only arise after the business had seen a sustained and consistent period of profitability.

The company’s management has been under pressure from the retail investment group Baugur to improve the retail side of the business.

Baugur, which owns 10 per cent of the company, urged Woolies to consider splitting its retail and wholesale arms, and also questioned the group’s strategy of refurbishing some of its under-performing stores.

In December, analysts at Citigroup said the retailer had no future in its present form and called its 818 high street stores "worthless".

Bish-Jones said that it was clear consumers were looking for value this Christmas and the store's "Worth It " value range sold very strongly.

He added that Woolworths' strategy for tackling a consumer slowdown on the high street was to continue to keep tight control of operating costs and focus on margin improvement.

"We continue to be concerned about the underlying level of consumer confidence during 2008. As such we will continue to be cautious in our planning, placing emphasis on cost control, margin control and cash generation," the company said in a statement.

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