Trailer Magazine

Woolworths upbeat about buy-back despite Big W closures

  • Posted on Tuesday 2nd, April 2019.

Retail company, Woolworths Group, has completed a major Petrol business sale, announced an off-market buy-back and confirmed Big W store and distribution centre closures.

Woolworths Group sold its Petrol business to EG Group, with proceeds from the sale to be returned to shareholders via a $1.7 billion off-market buy-back. The offer period will open 16 April.

“We remain focused on maximising shareholder value and as foreshadowed at our half-year 2019 results, we will return the proceeds from the Woolworths Petrol sale to shareholders,” said Woolworths Group Chairman, Gordon Cairns.

“A number of capital return options have been considered, and we believe that an off-market buy-back is the best option for the company and shareholders and will result in a significant franking credit release.

“The Buy-Back complements dividends of $1.4 billion already paid to shareholders this financial year through the F18 final and special dividends, and the [FY’19] interim dividend. Following the buy-back, the Woolworths Group balance sheet will remain strong and allow sufficient flexibility for future growth,” he said.

The buy-back will be open to eligible shareholders in Australia and New Zealand.

The sale of Woolworths Group’s Petrol business is likely to result in a gain on sale of approximately $1.1 billion after tax. The gain will be recorded as a significant item in the FY’19 results.

Following the conclusion of the BIG W network review, Woolworths Group has identified approximately 30 BIG W stores for closure over the next three years and two distribution centres (DCs) that will close at the end of their leases.

The cost of exiting these sites will result in a profit and loss charge of approximately $270 million mainly related to lease and other store exit costs. The review also identified approximately $100 million of non-cash asset impairments reflecting a more conservative level of margin recovery expected from BIG W, taking account of both current trading and the outlook for the broader sector, including the continued customer shift to online.

Together, the one-off pre-tax charge of approximately $370 million is currently expected to be recorded as a significant item in the FY’19 result. The cash cost is expected to be approximately $250 million, with the majority of the cash outflow from store exits expected in FY’21 and FY’22.

“As foreshadowed at our half year 2019 results, while the recovery in trading for BIG W is encouraging and there remains further opportunity for improvement, the speed of conversion to earnings improvement is taking longer than planned,” said Woolworths Group CEO, Brad Banducci.

“We understand the impact that the store and DC closures will have on our team and will endeavour to provide affected team members with alternative employment options within the Woolworths Group where possible.

“This decision will lead to a more robust and sustainable store and DC network that better reflects the rapidly changing retail environment. It will accelerate our turnaround plan through a more profitable store network, simplifying current business processes, improving stock flow and lowering inventory,” he said.

BIG W comparable sales growth in Q3’19 (12 weeks non Easter-adjusted) was approximately six per cent and was underpinned by strong transaction growth. Despite this, the profit improvement is slower than planned with BIG W currently expected to report a loss before interest and tax in FY’19 of $80-$100 million (FY’18: loss of $110 million).

The review was undertaken to help BIG W maintain a strong and profitable store network where all stores can make a strong contribution to BIG W’s profit over the longer term. Potential store closures represent approximately 16 per cent of the current store network with a remaining average lease tenure of approximately 10 years. To gain cost efficiencies and improve stock availability, BIG W’s supply chain will move closer to stores. The two impacted DCs (Monarto, SA and Warwick, QLD) will therefore be closed in FY’21 and FY’23 respectively.

Details of possible store closures will not be released due to ongoing discussions with landlords and in the interim, all stores and DCs will continue to trade as normal.

February this year, Woolworths, turned the first sod on a $57 million expansion of its existing Adelaide Regional Distribution Centre (ARDC).

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