Woolworths Ltd. (WOW), Australia’s largest retailer, plans to sell its Dick Smith electronics unit to focus on its supermarkets as competition and falling prices crimp earnings from selling computers and televisions.
The supermarket chain and general retail operator will take a A$300 million ($318 million) restructuring charge for the unit’s sale and the company’s Big W discount outlets will take over sales of electronics, the Sydney-based company said in a statement today.
Woolworths’ focus on staples, with Dick Smith representing less than 4 percent of revenue, has enabled it to withstand slower discretionary spending that prompted cuts to forecasts at other retailers, including rival electronics chain JB Hi-Fi Ltd. (JBH) The company intends to boost earnings with more-profitable fresh produce and a doubling of private-label brands as everyday items from supermarkets account for 84 percent of group revenue.
“Commonsense has prevailed and Dick Smith will be divested,” Peter Warnes, an analyst at Morningstar Inc. in Sydney, said in e-mailed comments today. “For many a year we have described Dick Smith as a distraction and called for the operation to be divested and consumer electronics to be integrated into Big W.”
Woolworths shares rose 1.4 percent to A$24.79 at the close of Sydney trading, paring this year’s decline to 1.2 percent. The stock dropped 6.9 percent in 2011, compared with a 15 percent decline in the benchmark S&P/ASX 200 index.
Harvey Norman Holdings Ltd. (HVN), Australia’s biggest electronics retailer, rose 0.5 percent, and second-ranked JB Hi- Fi gained the most since Aug. 10, climbing 6.6 percent to A$12.60 as the Woolworths plan stoked speculation of industry consolidation.
“We are going to go into a period of some kind of rationalization,” said Angus Gluskie, who manages about $350 million at White Funds Management Pty in Sydney.
Woolworths also separately reported second-quarter sales today, with revenue rising 5.1 percent to A$15.1 billion, matching the average estimate of four analysts surveyed by Bloomberg News.
Second-quarter food and liquor sales at Woolworths’s Australian supermarkets rose 4.1 percent to A$9.9 billion, with revenue from outlets open at least a year gaining 1.1 percent.
Same-store Australian grocery store sales were expected to rise 1.6 percent, according to the average of four analyst estimates.
Big W Sales
The Big W discount department store chain posted a 0.1 percent decline in second-quarter sales to A$1.3 billion.
The consumer electronics unit had a 3 percent increase in revenue to A$581 million.
“The investment and management attention given to Dick Smith have been disproportionate relative to its position within the Woolworths group,” the company said. “The company’s current focus is on accelerating growth in its core trading divisions.”
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