Woolworths Limited has committed to reducing its cost base by A$400 million by the end of 2025, primarily through streamlining its administrative and store support operations, a move expected to include job cuts. Chief executive Amanda Bardwell said the cost-cutting initiative aims to simplify the business to better navigate a changing market.
“We have also begun to simplify our above-store support office, which is expected to lead to annualised gross cost savings of approximately A$400 million by the end of calendar 2025,” Bardwell stated. “This is in addition to our ongoing store and supply chain productivity program, which provides some offset to annual inflation.”
The retailer faced higher costs in the December half, driven by rising wages and inflation, which contributed to a weaker-than-expected first-half performance. Industrial action at its warehouses, deteriorating performance at its Australian supermarkets, and broader cost pressures weighed on profitability.
"Woolworths' struggles persisted today, with the supermarket giant’s profit missing estimates and margins falling across the board, eToro market analyst Josh Gilbert, said.
“Group EBIT fell by 14.2%, driven by industrial action, supply chain issues, and ongoing discounts – further compressing its wafer-thin margins. Net profit margins dropped to 2.1%, down from 2.7% last year. While this is likely a one-time impact from the industrial action, the significant decline in sales remains disappointing.
“Woolworths really needed to deliver some optimism to investors today but unfortunately, that didn’t happen. The decision to cut its dividend by 17% will also disappoint loyal investors, especially since it remains the 6th most-held ASX stock by Australian investors on eToro.”
Return to profit, but…
Despite returning to profit, posting a net profit of A$741 million compared to a loss of A$781 million in the prior corresponding period, Woolworths’ earnings fell short of analyst expectations of A$783.8 million. As a result, the company slashed its interim dividend by 17% to 39 cents per share, payable on April 23.
Pre-tax earnings declined 14% to A$1.45 billion, with Australian supermarket earnings down nearly 13% to A$1.39 billion despite a 2.7% increase in sales to A$26.66 billion. The division, which generates 95% of group earnings, suffered from weaker customer satisfaction following legal action by the Australian Competition & Consumer Commission (ACCC) over alleged misleading discount practices, as well as nearly three weeks of industrial action that cost the company A$95 million.
Losses at Big W almost doubled to A$106 million, impacted by lower average selling prices and delayed seasonal clothing stock. The absence of profits from its former stake in Endeavour Group, lower property sales, and rising costs also weighed on group earnings.
“It’s been a baptism of fire for Amanda Bardwell since taking over in September last year. So far, she’s spent most of her brief tenure as CEO putting out flames, leaving little time to stamp her mark on the business,” Gilbert said.
“However, eCommerce remains a key growth driver for the company, an area in which Bardwell has proven capabilities. If she can steady the ship by improving operational efficiencies and consumer perception, all while driving growth in key areas like eCommerce, it may go some way toward supporting margins and improving profitability moving forward.
“Its A$400 million cost-saving initiative announced today is a step in the right direction and could be seen as a positive by the market, especially with the dent in sales from industrial action behind – but it will remain a challenging period for the fresh food people."
The company faces several challenges, particularly within its supermarkets division. However, there were stronger performances from its pet and health business under W Living, which saw sales rise 16% to A$3.08 billion, while its B2B segment grew 5.5% to A$2.98 billion. New Zealand supermarket sales were up 0.9% to A$3.89 billion.
“In Australian Food (supermarkets), the team has worked incredibly hard to recover from the supply chain disruptions caused by industrial action in November and December,” Bardwell said. “In Victoria, sales have not yet fully recovered, but availability and customer metrics are returning to pre-disruption levels with ongoing efforts to regain customers.”
The retailer noted that in the first seven weeks of the second half, supermarket sales growth of 3.3% was supported by a more stable trading environment, a collectibles program, and continued e-commerce expansion.