Growth in NZ to boost Woolworths' coffers

Australia's largest grocer, Woolworths Ltd, is forecast to post a 21.5 per cent rise in second-half earnings, boosted by cost cuts and liquor expansion programmes that should also underpin 2006 earnings.

The company expects to expand its liquor and general merchandise sales if its A$2.2 billion cash and share offer for New Zealand's Progressive grocery business is successful.

Progressive is owned by Australian-based Foodland Associated Ltd, and its shareholders are expected to vote to accept the bid in October.

The purchase will give Woolworths about 44 per cent of New Zealand supermarket grocery sales.

Higher liquor, food and fuel sales have also increased Woolworth's revenues, and it is mid-way through a project to cut the cost of delivering stock to its shelves.

Analysts said fiscal 2006 will benefit from a full-year contribution from the company's ALH pubs and liquor stores, bought in late calendar 2004, and an active store roll-out, particularly in liquor.

"Our view is that the growth opportunities going forward remain under-appreciated by the market," said ABN AMRO Asset Management retail investment analyst Matthew Hoult.

Woolworths is estimated to hold more than 40 per cent of the A$55 ($60.72) billion Australian grocery market and about a quarter of the A$11 ($12.14) billion take-away liquor market.

Its major rival in the grocery business, Coles Myer Ltd, is trailing Woolworths with its own liquor expansion and cost cut projects, and considering a possible sale of its underperforming Myer department store business.

Analysts forecast Woolworths second-half net profit at A$352.5 million, up from A$290 million a year ago, based on forecasts from Reuters Estimates. The second-half to June 26 comprised 25 weeks, compared to 24 weeks a year ago.

Year earnings are expected to rise 15 per cent to A$793.4 million from A$687.8 million, according to 13 analysts surveyed by Reuters Estimates, at the upper end of Woolworths' guidance for 12-15 per cent profit growth. It posted first-half earnings of A$440.9 million.

Fiscal 2006 year net profit is forecast to rise by around a fifth to A$956 million, according to Reuters Estimates.

The company's portfolio also includes Big W discount stores, and Dick Smith electronics.

Woolworths shares, which ended at A$16.60 on Tuesday, have added nearly 12 per cent this calendar year. Coles Myer shares slipped 1 per cent for the year to Tuesday's close while the wider market gained about 11 per cent.

Woolworths chief executive Roger Corbett, 63 next month, is due to end his term around August next year, with leadership plans after that date unclear.

- REUTERS