Woolies to close 30 Big W stores

Australia's largest retail group Woolworths (ASX: WOW) will be shutting down one in every six of its Big W stores over the next three years along with two distribution centres (DC), following a review of the division's outlook amidst challenges from online shopping. 

Big W recorded 6 per cent comparable sales growth in the third quarter but profit improvement has been slower than expected, with the segment set to record a loss before interest and tax of $80-100 million for FY19.

This compares to a loss of $110 million in FY18.

In an announcement today, the group said it had identified 30 Big W stores that will close at the end of their leases, with an implied P&L (profit and loss) charge of $270 million related to the exits.

In addition, Woolworths has identified a non-cash impairment of around $100 million for Big W, taking the one-off charge total to $370 million which will be booked as a significant item in the FY19 result.

The cash cost is expected to be approximately $250 million, with the majority of the cash outflow from store exits expected in F21 and F22.

"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," says 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."

Big W comparable sales growth in the third quarter was 6 per cent, underpinned by strong transaction growth.

Share buy-back announced

Woolworths Group has also completed the sale of 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 on 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," says 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 F19 interim dividend."

Cairns adds the Woolworths Group balance sheet will remain strong after the buy-back, allowing sufficient flexibility for future growth.

The sale of Woolworths Group's Petrol business is likely to result in a gain on sale of approximately $1.1 billion after tax.

Business News Australia