The Countdown supermarket chain posted a 3.7 per cent drop in annual earnings due to a combination of food price deflation, competitive pressures and increased team-based performance payments as part of a customer service improvement programme.

Earnings before interest and tax fell to $313.9 million in the 52 weeks to June 26, from $326 million the previous year, its ASX-listed parent company Woolworths announced.

When normalised for team performance-based bonuses, Countdown's ebit for the year was flat compared with the previous year, the company said.

Sales of $6.1 billion set a new record, up 3.8 per cent on the previous year, and the chain opened a net seven new stores in New Zealand.

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"Comparable sales increased 1.3 per cent for the year as customers reacted positively to our lower prices and improved service and fresh food offer," Woolworths said in a commentary on its New Zealand segment, which is the Countdown chain. "Sales per square metre declined by 0.9 per cent with comparable sales growth more than offset by an increase in year-end trading space of 5.1 per cent."

The supermarkets' own food price index showed deflation of 0.3 per cent over the year, with lower prices across both categories.

Reduced use of fuel discount promotions helped improve gross margin to 23.58 per cent from 23.5 per cent the year before.

There was a slight decline in return on funds employed, at 10.48 percent from 10.63 per cent the previous year, despite a 5.7 per cent fall in funds employed.

Countdown is now operating at 184 sites in New Zealand, having opened 10 new stores and closed three in the last year.

Progressive Enterprises Managing Director, Dave Chambers, said: "Countdown customers are benefiting from lower grocery prices and a better customer experience.

"In FY16 we increased sales, customer numbers and customer satisfaction, whilst operating in a highly competitive New Zealand food and grocery market. We're heading into FY17 with good momentum.

"Over the coming three years, it is anticipated that three to four new Countdown stores will open per year. Refurbishments of existing stores will also accelerate."

Comparable sales increased 1.3 per cent for the year as customers reacted positively to our lower prices and improved service and fresh food offer.

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The result was the first ebit downturn for the New Zealand supermarkets segment in the last five years. Expressed in Australian dollars, the New Zealand business returned operating earnings of A$224.5 million in the 2012 financial year, rising to A$303.2 million in 2015 before dropping back to A$284.4 million this year.

Woolworths' group results were heavily affected by the discontinuation of its Australian home improvements business, repositioning of its BigW business and a drive to improve competitiveness in its Australian food business.

The company reported a statutory net loss for the year of A$1.23 billion, compared with a net profit after tax in the previous year of A$2.15 billion. Ebit from continuing operations also fell heavily, down 54.8 per cent to A$1.61 billion.