By Michael Evans
AUSTRALIA'S largest retailer, Woolworths, has warned it does not expect a pick-up soon in consumer confidence as shoppers discover a ''new frugalism'' and are forced to spend more on basic goods because of the Queensland floods.
Woolworths chief Michael Luscombe yesterday detailed a string of negatives that had affected Woolies, saying the supermarket, hotel and electronics retailer would not reach its profit forecast for either the half-year just completed or the full 2011 financial year. ''It's not all that rosy at the moment,'' Mr Luscombe said.
Woolworths cut a bullish forecast in net profit growth for the financial year from between 8 and 11 per cent to between 5 and 8 per cent. Its shares fell 2.6 per cent to $26.76.
While it was the first time in about 15 years the retailer had cut its earnings guidance, Woolworths was still on target to deliver a bumper profit of more than $2 billion.
Mr Luscombe listed several factors buffeting Woolies - consumer confidence, inflation, deflation, interest rate rises, global economic conditions, increased personal savings, and increased energy, healthcare and education costs.
He also highlighted the impact of floods in Queensland and Victoria plus the Christchurch earthquake that would cost the company ''in the tens'' of millions of dollars.
The negative sentiment backs up complaints from smaller retailers and sends a message to the Reserve Bank, which will be closely monitoring December-quarter inflation figures out today.
The RBA will have to balance the concerns of retailers with a looming labour shortage and the mining boom stoking demand and increasing the need for an interest rate rise this year.
A short-term spike in food prices after the floods will also see households spending more of their pay packet on staples and less on discretionary items in coming months. While Woolies reported sales and market share growth in its dominant supermarket and liquor divisions, its discretionary businesses were under pressure.
''Food, supermarkets, hotels, New Zealand and petrol are tracking very well and meeting expectations,'' Mr Luscombe said. ''We have two businesses that in our view won't meet expectations: that is, discretionary retail - Big W and Dick Smith.
''We believe the Australian dollar won't fall so will continue to have a deflationary impact on our businesses.
''We also believe that consumer confidence is unlikely to change in the next six months as we are likely to have [interest] rate increases. We don't see good news from the global economy in the next six months. And we are aware of the 'new frugalism'. And then there's the impact of two natural disasters.''
While Dick Smith recorded sales growth for the first half, the high dollar made imports cheaper and tough competition in the electronics sector hit margins.
''There's no doubt we are all finding it difficult to get that growth margin,'' Mr Luscombe said. ''The thing is a TV product is 30 per cent less [than it cost last year] but the labour costs of getting it to market are the same or higher with inflation.''
Increasingly, big-ticket items were only being sold when on special, he said.
Big W faced ''trying'' market conditions, posting a near 3 per cent fall in sales. Mr Luscombe said Woolies was unable to ''get the dollars out of'' customers as prices were down up to 7 per cent because of the strength of the dollar.