Woolworths moves back into the black

WOOLWORTHS delivered a mixed bag of news for its shareholders today with a return to profit for its high street operations coupled with a cut in its dividend.

And while the company said it expected the retail environment to remain tough, it claimed it was well placed to meet future challenges.

Overall adjusted pre-tax profit for the year to February 2 rose by 30 per cent to £28.3 million, slightly ahead of the average City forecast for £27.5m but still well short of the £61.5m the company banked in 2006.

Crucially, Woolies' struggling retail arm turned around the previous year's loss of £12.9m, banking a profit this time around of £3.4bn.

Group sales were up 8.5 per cent to £2.97 billion. The contribution from the retail arm was £1.72bn, down from £1.81bn. But the wholesale arm was up to £1.25bn, from £920m.

Chief executive Trevor Bish-Jones said the performance had been helped by "rigorous cost control".

Also helping was its decision not to chase unprofitable sales in its 800-store high street operation, which saw total group like-for-like sales over the year dip by 3.2 per cent.

Explaining the slide, Woolies said just over half the decline was down to the change of tack on unprofitable sales.

Another reason given was the group's decision not to advertise over Christmas to the same extent as it had the year before.

Mr Bish-Jones said he was "particularly pleased" about the return to retail profitability. "We have made good progress over the past year. We are particularly pleased that Woolworths retail has returned to profit in a year in which our markets remained volatile and fiercely competitive."

He said that while current like-for-like sales were ahead compared with last year, an earlier Easter this year meant comparative figures were "meaningless".

But remaining optimistic, Mr Bish-Jones added: "Overall, across the group we believe we enter 2008/9 with the businesses strengthened relative to the prior year and well set up for the challenge ahead."

As part of the cautionary outlook, Woolworths said it was slashing its annual dividend by nearly two-thirds to help it "preserve financial flexibility".

Analysts had widely expected the high street DVD-to-sweets seller to make the dividend cut.

Woolworths proposed a final dividend of 0.17 pence to make a total payout of 0.6p, down from 1.77p last year.

Chairman Richard North said: "The board believes that payment of a dividend at this level represents an appropriate balance between providing a return to shareholders and preserving the financial flexibility necessary to support the plans and ongoing development of the business."