Woolworths is taking a massive profit hit from its price war with Coles and Aldi, with the supermarket giant conceding that a recovery could be several years away.
Woolworths is taking a massive profit hit from its price war with Coles and Aldi, with the supermarket giant conceding that a recovery could be several years away.
Meagre supermarket sales growth and a $100 million investment in lower grocery prices have the retailer expecting a profit fall of up to 35 per cent to between $900 million and $1 billion in the first half of the 2015-16 financial year.
Investors punished the retail giant, with a 9.8 per cent plunge by Woolworths shares wiping $850 million from the company's market value.
Despite the massive spend on lowering food prices in the first quarter, food and liquor sales rose by just 0.4 per cent to $11.1 billion in the three months to October 4.
That's down from a 3.9 per cent rise in the same period a year ago.
Like-for-like sales dropped 1 per cent, much weaker than the 3.6 per cent rise achieved by Coles in the same period, and another sign Woolworths is losing market share.
A recovery in sales will take several years, outgoing chief executive Grant O'Brien said.
"We believe it's a multi-year plan," he told analysts.
"There has been a lot done but there are still many bricks in the foundation to be put in place."
Supermarket and liquor boss Brad Banducci said the focus has been on lowering prices, promoting those lower prices, revamping the customer loyalty program and refurbishing stores.
"It has only been recently that we have communicated 'price drop' and 'low price always' and we need to do a lot more work," he said.
Store renovations will ramp up in the years ahead, with 120 renewals planned each year by the end of 2016-17.
It is too early to give a full-year profit forecast, Mr O'Brien said.
But the investment in lowering prices was being rolled out strategically and in a measured way, he said.
Woolworths plans to spend $500 million on cutting food and grocery prices to win back customers from Coles and to contain German discounter Aldi, which will soon expand into South Australia and Western Australia.
Morningstar analyst Gareth James said Woolworths was taking the necessary painful steps to restore profit growth.
"The question is whether this is temporary or whether this is the beginning of a sustained decline in profits," he said.
"Woolworths rode their strong market position for too long and allowed competitors to take market share and now it is difficult to win back customers."
CMC Markets chief market analyst Ric Spooner said investors would continue to dump the stock until Woolworths shows signs of a turnaround.
