Retail: Woolies, Harvey Norman Do Better

  The blind investors and the analysts in various brokerages and banks who have been down on Woolworths in the past few months, got one in the eye on Friday when the country's biggest retailer revealed higher profits, higher margins, higher dividend and a & #36;400 million buyback.The buyback grabbed the attention, and helped push the shares up a very tasty & #36;1.39, or nearly 5.5% on the day, to & #36;26.84.The earnings report was an effective answer to those analysts and big investors who had bagged the company after the first half sales report revealed a 4% rise in sales for the six month to January 3, or 6.0% if petrol was excluded.Woolies shares fell after the sales report in late January, hit a recent low of just above & #36;25.20 and then rebounded, fell to just above & #36;25.40 last week, then jumped on Friday after the earnings statement was made public.The shares are still well below the peak of just over & #36;28 in early January.And yet the interim results show that concerns about slowing sales impacting profits was wrong-headed.Now that the retailer is doing a share buyback, many analysts will switch the tune.The quality of the result can be simply shown: Woolworths posted an 11.4 % rise in first-half net profit, on a 4.2% rise in sales (and 6.0% after petrol).Petrol sales were down simply because prices were lower than a year ago. Volume was a touch higher.Earnings Before Interest and Tax were up 11.1%.More importantly the so-called EBIT margin in its Australian supermarkets rose to 6.45c in every dollar of sales, from 6.04c in the first half of 2008-09.That is the highest ever and continues the company's strong performance in the past six years of growing profits faster than sales growth.Its cost of doing business eased as well and the company has cut prices on thousands of items since balance date as it gets into a market slugfest on pricing with Coles.With the economy here on the upturn, it's probably no wonder that it lifted interim dividend 11% to 53c from 48c.And it's also no wonder that the company was able to say in its earnings release & quot;Woolworths believes that in the current environment, returning & #36;400 million to shareholders is a modest start & quot;.It had suspended capital management due to various acquisitions and the global financial crisis.The company also reaffirmed it expects net profit growth in the full financial year & #160;of 8-11%, based on sales growth in the upper single digits.The performance also shows it is managing to meet the challenges from & #160;the recovering Coles, Metcash & #160;and German discount chain Aldi.Interim net profit & #160;rose to & #36;1.095 billion from & #36;983 million a year ago.That compares with market forecasts of & #36;1.086 billion, according to market estimates.Revenue for the period - the 27 weeks to January 3 - rose 4.2% (including petrol) to & #36;27.2 billion and 6% to & #36;24.4 billion excluding petrol.Earnings per share rose 10% to 89.1c.Chief executive Michael Luscombe said in the statement & #160;it was a strong result despite the challenges of the slower economy and withdrawal of the government stimulus payment. & quot;We have strongly grown profits while driving 3,500 prices in our Australian Supermarkets business lower than a year ago, & quot; he said in the statement. & #160; & #160; & #160; & quot;The work we have done and investment we have made over the past ten years, which we continue to do, in improving our systems and streamlining our back-end processes, means we can deliver these benefits in a sustainable manner over the longer term. & quot;Woolworths' core Australian food and liquor sales growth slowed to 6.8% in the half, down from 9.0% a year earlier. Rival Coles is offering discounts and revamping stores to win customers in its turnaround under new owner Wesfarmers.Woolworths last week announced plans to build the first of its new large-format hardware stores (the joint venture with Lowes after taking over Danks Holdings last November).It's the key to its & #160;multi-billion dollar push to challenge Wesfarmers' dominant Bunnings home improvement chain.  

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