Tough year ahead as Woolies profits drop

Published on Wednesday 28 March 2007 11:45

STRUGGLING high street retailer Woolworths has today reported that its pre-tax profits have taken a nosedive to £16 million from £61.5m last year - but remained cautiously optimistic about its future.

The firm said tough trading conditions, combined with investment in its home delivery catalogue market and its store estate, had pushed profits down.

Woolworths was hit by falling CD and DVD prices through increased competition from supermarkets and online sellers as like-for-like retail sales fell 6.6 per cent in the year to February 3.

The slump in sales led to a 12.9m loss from its retail high street operations, against a 17.1m profit previously.

It said the loss was caused by a number of factors, including price deflation in the entertainment market, increased competition from supermarkets and declining footfall on the high street.

But the company, which said its retail sales figures were "disappointing", added that the investments would deliver cost savings in the future.

And its entertainment wholesale and publishing arm, which includes EUK and 2 entertain, posted adjusted profits of 53.1m, just slightly down from 56.4 the previous year.

Trevor Bish-Jones, chief executive of the Woolworths Group, said: "Last year was difficult for the Woolworths Group, particularly for the retail business. But we made some important investments which we believe will deliver benefits in the future."

He added that EUK had clawed back some of the benefits lost when Tesco moved its contract away through a series of new business wins, including a three-year contract with Virgin Retail to supply music, DVDs, games and books.

The company added in a statement that it expected 2007 to be a "challenging" year, but it planned to improve financial performance. It said it expected sales of console games to be an area of growth in the coming year.

It said: "We enter 2007 having completed a number of major investments. We can see opportunity both in the multi-channel arena and in the chain-wide deployment of learnings from our store development work.

"With tight control of costs and a higher gross margin, this provides the opportunity to drive improved financial performance in the retail business, notwithstanding the challenging retail environment which we expect to continue."