Lending Association

Woolworths faces statutory loss amid impairments and profit projections

Retail giant Woolworths is anticipating a statutory loss for the six months ending December. The supermarket group informed the ASX on Monday of impairments totaling nearly $A1.7 billion in its New Zealand supermarkets business and the accounting treatment for its remaining 9.1% stake in the Endeavour booze and hotels spin-off.

Simultaneously, Australia’s largest supermarket chain disclosed that its December half-year profit is expected to range from $A1.68 billion to $1.7 billion, marking a 3% or slightly higher increase. Woolworths Group stated, “Woolworths Group’s unaudited EBIT before significant items for H1 F24 is expected to be $1,682 million – $1,699 million (H1 F23: $1,637 million), which represents EBIT growth before significant items in the range of 2.8% – 3.8%. Further details on the trading performance and outlook will be provided at Woolworths Group’s F24 half-year results scheduled for February 21.”

Based on these figures, it appears that Woolworths may report a modest statutory loss for the first half of 2023-24 or a slight profit. Woolies stated that, following a review, it will impair the value of the NZ supermarkets operation by $NZ1.6 billion (around $A1.488 billion), despite ongoing efforts to rebrand and update the stores.

Despite challenges in New Zealand Food and BIG W during the first half of F24, Australian Food (including Woolworths Supermarkets and WooliesX) and PFD’s financial performance has remained solid.

The New Zealand supermarkets business has underperformed for several years, prompting Woolies management to undertake a $NZ400 million rebranding and renovation effort, with the new Woolworths branding commencing this month.

Woolworths revealed on Monday that despite initial progress in the revamp, including improved sales momentum towards the end of Q2, trading performance in New Zealand Food remained challenging, with H1 F24 EBIT expected to be NZ$71 million, a 42% decline from the prior year. The result includes approximately NZ$13 million in costs associated with the transformation of Woolworths New Zealand.

Due to a weaker medium-term market outlook, the time required for the transformation initiatives to reach full potential, and the impact of higher interest rates on discount rates, Woolworths is reviewing the carrying value of the goodwill on the balance sheet associated with Woolworths Group’s original acquisition of Foodland’s New Zealand business (Progressive Enterprises Limited) in 2005. Following this review, a non-cash impairment of NZ$1.6 billion will be recorded as a significant item in the F24 half-year results, representing a write-down against the current goodwill balance of NZ$2.3 billion.

The change in accounting for Endeavour drinks will result in a write-down of $A209 million. Woolworths Group currently holds a 9.1% interest in Endeavour Group but has determined that it no longer has significant influence as of December 31, 2023. As a result, the Group will derecognize its equity accounted investment in Endeavour Group and recognize an investment in Endeavour Group as a financial asset, measured at fair value. This is expected to result in a loss of $209 million, recognized as a significant item in the Group’s profit or loss based on an Endeavour Group closing share price of $5.21 on December 31, 2023. Following the loss of significant influence, Woolworths Group will no longer recognize its share of Endeavour Group’s profit or loss in the Other segment’s EBIT, and future dividends from Endeavour Group will be recognized as income in the Other segment when declared.