Woolworths predicts profit growth in face of global disquiet

'Consumer confidence remains historically low as customers ... opted to save rather than spend their money.' - Michael Luscombe. Photo / Kenny Rodger

Optimism rules as company records positive profit results in all trading divisions.

Supermarket giant Woolworths says it still expects to lift net profit in the current year but admits the retail sector faces significant challenges.

In New Zealand, Woolworths owns Progressive Enterprises, which operates the Countdown, Foodtown and Woolworths brands.

The company, which is among Australia's 10 biggest by market value, has forecast a 2 to 6 per cent increase in net profit. However, that outlook carries the caveat of the current global financial uncertainties.

The last year had witnessed "unprecedented macro-economic circumstances" that had had an adverse affect on retailing, managing director Michael Luscombe said in Woolworths' annual report.

"Consumer confidence remained historically low as customers reacted adversely to rising utility costs, interest-rate hikes in the first half of the year and general global uncertainty, and opted to save rather than spend their money," he said.

It was "very difficult" to accurately predict the outlook for this year.

However, there was optimism with the company recording positive profit results in all trading divisions, particularly Australian supermarkets and liquor, with improved ebit (earnings before interest and tax) above 7 per cent.

This week's report is Luscombe's final to shareholders before Grant O'Brien takes over his role next week.

Woolworths increased full-year profit by 5.1 per cent to A$2.12 billion ($2.67 billion) for the 52 weeks to June 26.But trading in July and August had followed the trend of late May and June when consumers contributed what it called "anaemic" spending.

It grew market share in the fresh food and packaged goods segment, but profitability was weak compared to rival Coles, and skinny margins hurt the performance of its Dick Smith electronics stores.

Earnings this year will also be affected by anticipated start-up costs for its new Masters home improvement business of as much as A$100 million, which would affect earnings in fiscal 2012. The new business is taking on heavyweight Bunnings, owned by rival Coles, with the first store already opened and a 19th being built.

- AAP