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Woolworths sales show small lift in FY17

AAP logoAAP 24/08/2016 Petrina Berry

Woolworths is showing signs of slowly returning to sales growth, the struggling retailer's recently installed chief executive Brad Banducci says.

Mr Banducci's cautious optimism came as the supermarket giant unveiled a $1.2 billion full-year loss for 2015/16 on Thursday, a massive reversal of its $2.15 billion profit a year ago.

A plunge in underlying earnings from its supermarkets and more than $2.6 billion of writedowns, mostly from its failed home improvement foray, drove the loss.

Woolworths announced on Wednesday it will close Masters and sell Home Timber and Hardware to Mitre10 owner Metcash to focus on its core supermarkets business.

The group's supermarkets are under pressure, with aggressive price cuts hurting earnings amid tough competition from Coles and discount chain Aldi.

After Thursday's result, Woolworths has had seven consecutive quarters of declining comparable sales while rival Coles has consistently reported growth in the key performance measure.

However the sales decline in the last quarter of 2015/16 was the smallest for the year at 1.1 per cent and Mr Banducci said the first eight weeks of the new financial year recorded a slight increase in comparable sales of 0.3 per cent.

"I don't think it is a flash in the pan but time will tell," he said.

Woolworths' $500 million outlay on lower food prices for 2015/16 led to a 40.8 per cent drop in its underlying supermarket earnings to $1.76 billion.

"It is a dramatic decline and it's a result of our investment in prices as well as store service," Mr Banducci said.

Discount department store Big W added to Woolies' troubles with underlying earnings slumping to a $14.9 million loss, compared to a $111.7 million profit a year ago.

Big W chief executive Sally Macdonald said the result was disappointing and she has been focused on restructuring the retailer,.

Asked if Woolworths should sell Big W, she said: "I think the jury is out as to whether it should be in or out."

Shares in Woolworths rose on Thursday in reaction to the company's news late on Wednesday that it would sell Home Timber and Hardware and shut down the Masters business.

Forager Funds senior equities analyst Daniel Mueller said investors reacted positively to the home improvement deals, which will net Woolworths $500 million after expenses, rather than the core supermarkets business.

"The profit result was in line with low expectations and the outlook comments were negligible and doesn't give people a lot of confidence in the business," he said.

Shares in Woolworths rose to $26.05 in Thursday trade before closing 95 cents, or 3.9 per cent, higher at $25.17.

WOOLWORTHS' WOES

* Net loss $1.235b v $2.146 profit

* Sales revenue down 1.23pct to $58.086b

* Final dividend 33 cents, fully franked, down from 39 cents. Total dividend 77 cents.

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