As new CEO is placed at the helm of the business.
Woolworths has booked a $1.9 billion write-down for the failed Masters home improvement business as the company enters the red with a 176% decline in net profit to a $972.7 million loss. Earnings before interest and tax also fell by a significant 190.5% to a loss of $1.79 billion, although total group sales only saw a slight decline of 1.4% to $32 billion.
The search for a new CEO has also come to an end as Brad Banducci (pictured) steps into the role of CEO and managing director of Woolworths Limited, effective immediately. He is currently managing director of Woolworths Food Group and will continue in that role pending a replacement.
Upon conclusion of the independent expert process, having exercised its call option, Woolworths will acquire Lowe’s 33.3% interest in the Masters home improvement business. In the second half of FY16, additional estimated restructuring costs are expected to be in the range of $70 to $80 million. Home improvement will be presented as a discounted operation in FY16 results.
Surprisingly, Masters’ sales for the half year ended January 3, 2016, increased 23.4% to $623 million. However, loss before interest and tax increased by 22.9% to $137.9 million, which has been attributed to the sales performance of the original format stores, the impact of clearance activity and category mix on gross margins and higher costs associated with new store openings.
Meanwhile, Home Timber and Hardware (HTH) sales increased by 8.7% to $525 million, driven by the sales benefit of recent acquisitions and comparable growth in wholesale.
Big W sale slide and EBIT fall
Challenges in the entertainment category, including significantly lower tablet sales and an ongoing decline in DVDs, although offset by a strong performance in gaming, have been cited as contributing factors to Big W’s 3.9% decline in sales to $2.27 billion and conservable 38.7% tumble in earnings before interest and tax (EBIT) to $67.3 million from $109.7 million.
Despite this, there was an improving sales trend through Q2 2016 with December the strongest trading month of the period driven by an improvement in availability and clearance of unproductive inventory completed ahead of schedule.
A significant cost reduction exercise is underway to improve base profitability. The company’s marketing spend will transition toward digital via social media, viral marketing and blogging. Big W will also analyse new and strategic store opportunities in the medium term.
In a statement to the Australian Securities Exchange (ASX), the company stated, “Despite financial performance, we are making progress in the rebuilding of Woolworths. We have significantly invested in price, service and customer experience in Australian supermarkets, appointed a new group and Big W CEO and announced our exit of the Home Improvement business.”
Retail veteran placed in top spot
Commenting on the appointment of Banducci, Woolworths chairman, Gordon Cairns said, “We undertook a rigorous international search process to find the best person to rebuild the Woolworths business and return it to sustainable growth. While there were several strong candidates, the Board was unanimous that Brad was the strongest of the field.”
Banducci has 25 years of experience in retail, including 15 years consulting to some of the world’s leading retailers, as well as private equity experience. He has been with Woolworths for five years, including his role in leading the growth of Woolworths Liquor Group.
“He clearly understands the Australian market, has a total commitment to our customers, and a great track record of growing valuable businesses and developing his people,” Cairns added.
Banducci further commented, “I am honoured to be the CEO of Woolworths to lead our 200,000-strong team into the next chapter. I am a true believer in the potential of Woolworths and I am excited about our future.
“I am an entrepreneur at heart, and a retailer by discipline, and I want us to take our company back to its levels of performance.”
Former Woolworths CEO, Grant O’Brien will cease to be an employee on 1 August 2016 but will no longer exercise the responsibilities and powers of the CEO position with effect from today.