Woolworths Falls Amid Slowing Profit and Dividend Growth

Woolworths Ltd., the largest retailer outside the U.S. and Europe, fell the most in a month after lifting its dividend at the slowest pace since 2012.

Net income rose 15 percent to A$1.32 billion ($1.18 billion) in the six months ended Jan. 5, the company said in a regulatory statement today, in line with the A$1.3 billion average of three analysts’ estimates compiled by Bloomberg. Over the full year it will grow at a rate of 5 percent to 7 percent, Sydney-based Woolworths said.

Chief Executive Officer Grant O’Brien is trying to recapture growth that saw net income increase more than 10 percent annually for 11 straight years until 2011 by increasing Woolworths’ dominance of Australia’s grocery market and funding an expansion into hardware stores. The dividend was lifted to 65 Australian cents, from 62 cents a year earlier, the slowest rate of growth in 18 months.

“The dividend wasn’t as high as people expected,” Peter Esho, chief market analyst at Invast Financial Services Pty., said by phone from Sydney. “The stock’s been bid up over the past few months quite aggressively and there’s just profit taking.”

Woolworths shares fell 1 percent at the close in Sydney, bringing their total gain this year to 6.6 percent against a 1 percent improvement this year for the benchmark S&P/ASX 200 index.

Revived Competition

Woolworths, which opened its first store in Sydney in 1924, is facing revived competition from second-ranked Wesfarmers Ltd., which said Feb. 19 that second-quarter sales from Coles supermarkets open at least 12 months increased 3.8 percent from a year earlier. That marked the 16th consecutive quarter in which the chain has outperformed Woolworths supermarkets on the measure.

Earnings before interest and tax at Woolworths’s Australian supermarkets rose 6.8 percent to A$1.69 billion in the first half. Those from New Zealand supermarkets climbed 9.7 percent to A$136.8 million, driven by the about 9 percent appreciation of the kiwi dollar against the Australian currency over the period.

“A tough budget and the future of key industries in this country,” may be “a drag on consumer confidence” over the rest of the year, O’Brien said on a media call after results today.

At the general merchandise unit that includes Big W, Ebit dropped 6.9 percent to A$120.5 million. Earnings from pubs increased 16 percent to A$163.9 million.

Masters Loss

The loss before interest and tax from Masters widened 4.1 percent percent to A$71.9 million and the loss from Woolworths’s entire hardware unit deepened 10 percent to A$64.4 million.

O’Brien has spent A$956 million on capital projects and had A$236 million of operating losses at the home improvement unit which includes Masters since it started the rollout of 38 stores under the brand in 2011, according to data compiled by Bloomberg.

“Masters is going to drag on for a couple of years before it contributes,” Jeremy Hook, investment director at TMS Capital Pty. in Sydney, said before the earnings announcement. “When it does it’s not going to be worth much.”

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