Australia's Woolworths flags $1 billion charge against NZ stores on bleak outlook

By Rishav Chatterjee

(Reuters) -Woolworths forecast on Monday a non-cash impairment of NZ$1.6 billion ($974.40 million) in its 2024 interim results, as the retailer's New Zealand business faces challenges and a weak market outlook, with shares losing most in a fortnight.

Still, the supermarket chain said strong results at its Australian stores and food distribution business will manage to offset bleak performances from its New Zealand grocery and Big W discount segments.

Woolworths, Australia's largest grocer, said it expects first-half unaudited EBIT between A$1.68 billion ($1.10 billion) and A$1.70 billion, slightly higher than the A$1.64 billion a year earlier.

The rise in the group's EBIT is expected on the back of solid financial performance by its Australian Food business and food distributor PFD Food Services.

"Woolworths has been struggling with its NZ business for a while now, with recent tough macro-economic conditions also weighing on performance," said E&P Capital retail analyst Phillip Kimber.

Shares of Woolworths were down 1.2% at A$35.8, as of 2347 GMT.

"While this implies a stronger-than-expected performance from the key Australian Food business, it's nevertheless disappointing that the NZ Supermarket business continues to be volatile."

The retailer also expects to record a A$209 million loss after a review of its 9.1% stake in local alcohol retailer Endeavour Group as the company feels it no longer holds "significant influence" over the ASX-listed peer.

The NZ impairment will result in a write-down against the company's current goodwill balance of NZ$2.3 billion, Woolworths said, adding that the division has been seeing effects of a weaker medium-term market outlook and organisational transformation initiatives yet to reach full potential.

The company had acquired wholesaling and supermarket assets of Foodland's New Zealand business in 2005 in a deal valued at A$3.38 billion.

Woolies sees its first-half earnings before interest and tax (EBIT) of NZ$71 million for the NZ segment, down 42% from a year-ago period.

($1 = 1.6420 New Zealand dollars)

($1 = 1.5209 Australian dollars)

(Reporting by Rishav Chatterjee in Bengaluru; Editing by Leslie Adler, Lisa Shumaker and Sherry Jacob-Phillips)