Countdown boosts first-half earnings 2.9% amid cost cutting, higher volumes

Countdown, the New Zealand supermarket chain owned by Australian retailer Woolworths, increased first-half earnings 2.9 percent as it cut costs and boosted volumes to compensate for lower prices.

Earnings before interest and tax increased to $169.1 million in the half year ended Jan. 4, from $164.4 million in the year earlier period, the Sydney-based retailer said in a statement. Revenue rose 1.1 percent to $3.05 billion.

Countdown started its 'price lockdown' and 'price drop' marketing campaigns in October 2013 in an attempt to better compete with the rival Pak 'n Save and New World supermarkets run by the Foodstuffs cooperative. In the first half, Countdown's gross margin fell 6 basis points to 23.19 percent as prices dropped 0.3 percent, with deflation across a number of key categories including grocery and bakery. It reduced the cost of doing business by 16 basis points during the period, reflecting strong cost management, particularly in support functions.

"Countdown supermarkets continued to deliver profit growth despite price deflation and ongoing subdued grocery market conditions in New Zealand," said Woolworths chief executive Grant O'Brien. "While the reinvestment in price as part of our 'price lockdown and 'price drop' campaigns has impacted margins, strengthened customer price perception results, customer numbers and units sold since the launch of these campaigns indicates their success as we progress with the transformation of this business."

Countdown opened five new stores in the period, refurbished three and closed two, taking its total store numbers to 174. It expects to open a net six new stores over the full year, ahead of its long-term target of three to five stores a year.

Capital expenditure jumped 31 percent to A$71.9 million, reflecting investment in the stores.

Shares in Australian-listed parent Woolworths fell the most in more than six years after the company cut its full-year profit forecast as it ramps up investment in its supermarket business.

The retailer's shares dropped as much as 9.8 percent, the most since October 2008, and were recently 8.6 percent lower at A$31.04.

Countdown managing director Dave Chambers has been appointed the director for Woolworths supermarkets, reporting to the company's newly appointed managing director of its Australian food and liquor division Brad Banducci.