Woolworths reports $1.7b profit as chief executive expects customers to remain cautious amid tight economy

Outgoing Woolworths boss Brad Banducci expects shoppers will remain cautious for the next 12 months amid a tight economy.

Mr Banducci, who will be succeeded next month by Amanda Bardwell as head of the nation’s largest supermarket and retail group, said though inflation had slipped lower across supermarkets and Big W over the second half of the 2024 financial year, challenges were expected to persist.

“Lower inflation provide(s) reason for optimism,” he said on Wednesday.

“However, we also know that our customers remain under significant mortgage and rent-related financial stress and anticipate them to remain cautious — with the trading environment expected to be challenging for the rest of the financial year.

“For the first time since the first half of the 2022 financial year, average prices declined compared to the prior year ... as lower prices were passed through to customers, particularly in fruit and veg and meat.

“Customers tell us they have been finding more ways to save, such as cutting back, cross-shopping between retailers, more dining at home and taking advantage of specials. While cost-of-living pressures (persist) customer spending on groceries as a percentage of household spending is declining.”

Later, Mr Banducci added the shift over the past six months in customer behaviour had been “much more of a socio-demographic issue” — particularly concentrated on renters, young singles and couples, as opposed to saver, budget-conscious families.

Even more affluent shoppers were trading down, perhaps from organic chicken to RSPCA-approved chicken, he said.

“Really, every store in Woolworths right now is a value store,” he said. “We need to get the value right. What value means in every store is different and for every customer is different.”

Supermarket and food retail sales improved in the fourth quarter of the 2024 financial year, up 10.6 per cent, or 2.2 per cent on a normalised basis that accounts for the extra week in the 2024 financial year compared to the year prior.

Average prices decreased 0.6 per cent in the quarter compared to year earlier, with improved fruit supply and availability and meat prices also lower. Woolworths released figures showing the average basket price had fallen one per cent year-on-year.

Mr Banducci again noted increasing numbers of customers using digital tools like recipes, shopping lists, and the best unit price filter to better manage their household budgets.

Looking ahead, Mr Banducci said food sales had increased 3 per cent in the first eight weeks of the new financial year. Woolworths would be driving productivity in operations to counter elevated wage inflation and cost pressures.

“We remain focused on growing our customers’ shopping baskets but expect cost-of-living pressures to persist with cross-shopping and trading down continuing,” he said.

Discount department store Big W showed some signs of improvement in the fourth quarter after a tough year affected by the grim consumer outlook and economic caution. Its entire clothing range was overhauled to offer fewer styles, lower price points, greater all-year ranges and better fitting clothes. New products are expected in stores from this month.

Woolworths’ post-tax profit was $1.7 billion, but was pulled lower by a previously disclosed impairment of $1.5b on its New Zealand supermarkets. When that was counted, profit was $108 million.

Ms Bardwell warned the operating environment could “rapidly change”, and flagged Woolworths would look to “create the future of everyday retail”.

This would include using technology and artificial intelligence to overhaul how people shop and team members work, she said.

Mr Banducci added Woolworths needed to “do more for the customer on value”, but emphasised recently launched specials and lower shelf prices and other app initiatives to that end.

Woolworths expects to declare a total fully-franked dividend of $1.44 per share, inclusive of a 40¢ per share special dividend.

Mr Banducci is finishing up after eight years, and is Woolworths’ longest-serving chief executive since it was founded 100 years ago.

He said he would not change anything about his tenure — which has been particularly rocky this year amid political inquiries — and said the business had substantially changed over that time.

He said there was more work to do particularly with suppliers — calling out fruit and vegetables — on price transparency.

“People want to see lower shelf prices,” Mr Banducci said, adding while it had taken a while, that was because “we have to work fairly with our suppliers”.

Woolworths is eyeing 10-20 new full-line supermarkets over the medium-term and five to 10 of its smaller format Metro stores. Mr Banducci confirmed development snarls had affected its rollout plans but said stronger growth potential was in eCommerce.

“It’s everywhere, the demand for convenience,” Mr Banducci said, adding Woolworths had the biggest eCommerce business in Australia. The Woolworths app’s “re-order” function had been pivotal, allowing customers to place previous orders again with the touch of a button.

“In the last six months it’s become a really important way of delivering value because you can shop specials much easier than in the store,” he said.

“It’s for families. You know, when you’ve got three kids, herding them in to the car to drive to the supermarket is not your idea of a good time.”