Macquarie Bank analyst Bryan Raymond said investors were likely be disappointed that a suitable external CEO could not be found, while Shaw & Partners analyst Danny Younis said the fact an international CEO could not be found highlighted just how challenging the turnaround would be.

While Mr Banducci is well-regarded by the market and has worked in retailing and retail consulting for 25 years, he lacks hands-on food and grocery experience.

Woolworths chairman Gordon Cairns defended the appointment, saying the board had undertaken a rigorous international search process to find the best person to rebuild Woolworths, return it to sustainable growth and change the company's culture.

"Brad is an outstanding leader - he possesses the right leadership characteristics, he has demonstrated through his career he's a supreme strategist ... and he brings the appropriate culture to the organisation," said Mr Cairns, who chose the South African-born Mr Banducci over two external candidates.

"He has a lovely balance between being entrepreneurial from his private equity days and being a good retailer. We're very confident he'll create the new culture that is required."

"We reached a conclusion very quickly that rather than a portfolio manager we wanted a retailer."

Woolworths lost $972.7 million in the December-half after slashing the value of its loss-making home improvement business by a larger-than-expected $3.2 billion pre-tax and $1.9 billion after tax - representing 90 per cent of book value - writing down property plant and equipment, inventories and leases to their estimated net realisable value.

Woolworths decided to pull the plug on its disastrous six-year foray into home improvement last month, agreeing to buy out its US partner Lowe's and then sell or wind up the business.


Before the write-offs, Woolworths' underlying net profit slumped 33.1 per cent to $925.8 million and earnings before interest and tax fell 31.6 per cent to $1.45 billion as sales slipped 1.4 per cent to $32. 2 billion.

The underlying net profit was in line with Woolworths' $900 million to $1 billion guidance, but fell short of consensus forecasts around $948 million. The retailer earned $1.38 billion net in the previous December-half.

Woolworths is cutting costs and investing more than $600 million into reducing grocery prices and improving service in stores in a bid to regain lost market share and restore trust with customers.

However, the strategy, which has been in place since February, has so far failed to gain traction.

Same-store sales in Australian food and liquor stores fell for the third consecutive quarter, slipping 0.6 per cent after a 1 per cent decline in the September quarter and weakened again in the first seven weeks of the June-half, down 0.9 per cent.

Australian food and liquor EBIT dropped 31.7 per cent to $1.3 billion as Woolworths invested another $150 million into reducing prices, ahead of planned cost savings. Margins (including petrol) fell from 7.4 per cent to 5.2 per cent.

Woolworths said supermarket sales momentum had improved in December, but it did not see significant improvement in same-store sales in the current half. June-half margins were expected to fall to 5 per cent.

"There is a lot of hard work ahead of us but we are very clear on our priorities and are confident we have the leadership team to get us there," Mr Cairns said.


"We are rebuilding the Woolworths business. While we have made progress, it will be a three to five year journey and there is much to do."

Woolworths' underlying earnings were also dragged down by burgeoning operating losses from home improvement and another drop in earnings at BIG W, which has been losing ground to Kmart and Target and struggling with a new merchandise management system.

Cut dividend

Earnings from general merchandise, which includes BIG W and online retailer Ezibuy, fell 39 per cent to $67.3 million as sales slipped 3.9 per cent to $2.27 billion and comp-store sales fell 4.5 per cent.

Gross margins improved as BIG W completed clearing more than $400 million in old stock, but its cost of doing business to sales jumped 156 basis points to 30.7 per cent on higher rents, labour and depreciation costs.

In home improvement, losses increased from $103.2 million to $125 million despite a 16 per cent rise in sales to $1.14 billion.

Masters lost $138 million compared with a loss of $112 million in the same period a year ago as the chain cleared stock and incurred new-store costs.

But earnings at the wholesale business, Home Timber and Hardware, rose 43 per cent to $13 million after a series of store acquisitions.


Earnings also fell in the once-reliable hotels business, slipping 6.6 per cent to $135 million due to higher promotional costs and rents following the sale and leaseback of 54 freehold hotel sites in late 2014.

Woolworths' $500 million 'fuel for growth" cost out program has so far generated $260 million of cumulative cost savings, mainly from procurement ($190 million), the Mercury 2 supply chain program ($28 million) and support functions ($40 million).

Woolworths slashed its interim dividend by 23¢ to 44¢, below market forecasts around 48¢, maintaining its 70 per cent payout ratio.

Former chief executive Grant O'Brien, who fell on his sword last June after a series of profit writedowns, will leave Woolworths immediately. However, due to accumulated long service and holiday leave he will remain on the books until August 1, by which time he will have turned 55 and will be eligible to participate in the company's defined benefits pension scheme.

Woolworths shareholders have criticised the arrangement, but Mr Cairns dismissed suggestions of a "sweet heart deal" with Mr O'Brien, saying he had agreed to stay on until a new CEO was appointed and had given up significant termination payments to which he would have been entitled.

"The board took a simple risk adjusted decision that it was in the company's best interests," he said.

Mr Cairns thanked Mr O'Brien, a 30-year Woolworths veteran, for his service and wished him the best for the future.

For full coverage of today's earnings results, visit the AFR Results Wrap - February 26



