Earnings Transcript for WOLWF - Q3 Fiscal Year 2024

Operator: Thank you for standing by, and welcome to the Woolworths Group F '24 Q3 Sales Announcement. [Operator Instructions] There will be a presentation followed by a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to Mr. Brad Banducci, Managing Director and CEO of Woolworths Group. Please go ahead.

Brad Banducci: Good morning, everyone. Before we start the call today, I would like to acknowledge the Traditional Custodians of the land on which we meet, the Gadigal People of the Eora Nation. And I'd like to pay my respects to Elders, past the present. Thank you for joining us today for Woolworths Group's third quarter sales results for the F '24 financial year. Joining me this morning are Stephen Harrison, our CFO; Natalie Davis, Managing Director of Woolworths Supermarkets; Guy Brent, Managing Director of Woolworths Food Company; online from New Zealand, Spencer Sonn, Managing Director of Woolworths New Zealand; Dan Hake, Managing Director of BIG W; Annette Karantoni, Managing Director of Primary Connect; and also joining us are Amanda Bardwell and Sally Copland. Sally stepped into the role of Interim Managing Director of WooliesX in early April to allow Amanda to spend more time with our customers, partners and teams across the group as part of her transition plan before assuming the CEO role in September. Moving to our results. Q3 was a challenging quarter. We have seen a noticeable shift in sentimental behaviors as customers adjust their budgets and spending following the Christmas holiday period. This impacted both our customer metrics and sales across the group. Our customer surveys also showed a meaningful increase in customers across all segments telling us they are struggling to make ends meet given the material increases in mortgages, rents, utilities, insurance and other key household expenses. We know our customers shop in our stores multiple times a week and grocery price increases are very visible to them. This, together with customers feeling they have some control over their food and grocery budget brings grocery price increases into sharp focus. Importantly, food inflation has continued to moderate materially in Australia and New Zealand as external inflationary pressures abate. And in Q3, our average prices were broadly flat compared to the prior year. Turning to the detail in our results. Group sales increased by 2.8% to $16.8 billion for the quarter, and Australian Food sales increased by 1.5% to $12.6 billion. In Australian Food, Woolworths Food Retail sales increased by 1.5% on an adjusted basis. On a reported basis, sales increased 1.3% or 2.5% excluding tobacco. Sales growth was impacted by a strong Q3 last year and an ongoing moderation inflation, mainly driven by ongoing deflation in fruits and meat supplemented by lower inflation in grocery food Everyday Needs and Everyday Chilled. Comparable items declined 0.5% in the quarter, impacted by the cycling of collectibles campaign in the prior year as well as some availability challenges in Fresh categories in January and February and more broadly in rigs due to the CO2 shortages. Pleasingly, item growth improved over the quarter and returned to growth in March and April. Woolworths Food Company's owned and exclusive brand sales grew 2.3% in Q3 with item growth of 1.8%. Categories such as pantry, frozen foods and household care performed strongly, reflecting the value offered by our own brands in these categories. And we also saw good sales growth in Fresh categories due to lower prices. Average prices in Q3 declined 0.2% compared to the prior year, with the moderation driven by deflation of 6.2% in Fruit & Vegetables, 9% in meat and Long Life inflation of below 2%, excluding tobacco, as we exited the quarter. WooliesX eCommerce sales increased by 18.4% to $1.5 billion, with penetration reaching 12.4%, an increase of 1.8 points over the prior year. Growth continued to be driven by same-day orders with 86% of B2C sales delivered within 24 hours of order placement. Cartology revenue declined 4.1% in the quarter, impacted by the cycling of collectibles program last year. However, underlying revenue growth was broadly in line with H1. Rewards and service platform sales increased 15.2% in the quarter with more than 720,000 new members joining Everyday Rewards and total active members reaching 9.7 million in Q3 with scan rates continuing to grow. Australian B2B sales increased by 3.2% compared to the prior year with growth rates impacted by the exit of our international businesses in F '23. Excluding the exited businesses, sales increased by 5.1% with PFD growth solid at 5.4%. New Zealand Food sales increased by 0.2% in Q3 or 1% on an adjusted basis. Sales growth was also impacted by lower inflation and a very competitive trading environment. We made good progress on Woolworths New Zealand's transformation during the quarter, with a solid increase in both Value for Money and Fruit & Vegetables customer scores, up 6 and 9 points, respectively, following the reset of key pricing mechanics and improvements in Fresh during the quarter. BIG W sales for the quarter declined by 4.1% or 4.9% on an adjusted basis, reflecting increased consumer caution and down trading, most evident amongst budget customers. By trading segment, sales in Play were broadly flat with growth in books, toys and gaming. In Everyday categories, a strong performance in beauty, celebration and events more than offset lower sales in pet care and baby and nursery. Sales growth in clothing and home were more impacted -- most impacted in the quarter, with clothing sales impacted by a slower start to autumn/winter and home sales impacted by ranging changes that resulted in availability challenges. Turning to current trading. In Woolworths Food Retail, adjusted total sales growth in April was broadly in line with Q3 with inflation continuing to moderate and items showing ongoing modest growth. Adjusted sales growth in April has also remained broadly flat -- broadly in line with Q3 for both New Zealand and BIG W. While we are beginning to cycle softer sales in BIG W in the prior year, aforementioned slow start to autumn/winter clothing sales is creating some downside risk to our previous expectations of EBIT breakeven in H2.Today's release also provides an update on our New South Wales supply chain transformation. And in particular, the major projects reaching on year-end completion in F '25 and F 26, including our Auburn CFC and our Moorebank NDC and RDCs. Construction on these projects have generally been progressing to plan for some weather and other minor project delays has led to an overlap of the expected cost of implementation, dual-running and transition, which will peak in calendar '25. F '25 incremental costs are expected to be approximately $100 million, higher than F '24. And F '26, we expect a similar total cost before net benefits are realized in F '27 and a double-digit growth expected in F '28. We remain confident in the benefits we will realize from these automation investments, which will materially enhance the experience of our customers and efficiency in New South Wales when complete and support the strategic importance of building supply chain resilience. In conclusion, our focus for the rest of F '24 remains ensuring our customers get value and feel valued. We expect trading conditions to be challenging for the next 12 months due to competition for customer shopping baskets and as inflation remains in a very low single-digit range. However, as a group, we are well positioned to manage this more challenging environment through our ongoing focus on our customers and our well-progressed end-to-end productivity plans. I will now turn the call over to the operator for questions. To give everyone a chance, can I please ask that you limit it to one question per person and then rejoin the queue with any follow-up questions.

Operator: Thank you. [Operator Instructions] Your first question comes from Tom Kierath with Barrenjoey.

Tom Kierath: Just a question on the food business, Brad and team. I'm just interested in why the April trading has remained as weak as it has. You haven't had any collectibles issues in the PCP, the fresh ordering system, sounds like it's been improved and updated. I mean, is this a bit of a hangover from the weak NPS scores that you had in the quarter? Or just a bit more color on the April trading, in particular, would be helpful.

Brad Banducci: Thanks, Tom. As alluded to in sort of in my introduction, we have continued to see item growth in April. Just given it's a very messy month, as you know, with a split of school holidays between the different states. And then we had Easter in Q3, but with Monday, Easter Monday in the quarter. So, it is a bit more messy than normal in terms of looking at the like-for-like. Full week is always tougher and you've got all these differences. But we did see continued item growth, which is important, but also a hold of very low inflation. So, we think that it was actually a really positive start funding us to Q4. But this week, in many ways at the first week, we'll get a good clear read on things now that we're out of Anzac Day and all the changes that go with that. So of course, that will be determined over the next -- over the month of May.

Operator: Your next question comes from Michael Simotas with Jefferies.

Michael Simotas: Look, when we read this release, the tone seems to be a lot more negative than what it was only a couple of months ago with the interim result release, negative sentiment, significant competition for baskets. We've now got the duplication in supply chain costs for a couple of years coming through a bit more downside to BIG W potentially. We had a big profit reset for Woolworths several years ago and then the industry effectively followed. Is that what we're looking at now, do you think? Or is this just a short period of volatility in the business and ultimately the industry can work through?

Brad Banducci: Michael, that's a good question. At our half year results, we did allude to a more challenging second half. And we've now gone through the first quarter of that half. So, I don't think it's inconsistent with what we said. I mean, whatever it was 8 to 12 weeks ago. It would be fair to say that a lot of the negative media and the political context we've operated in was even more challenging than we had expected. But in terms of overall performance, it's broadly in line with what we had thought might happen. We could see the inflation coming off and we need to help it come off for our customers. Very important, as you know, in the current context. And so that's actually trended broadly in line with what we had expected. And the overall numbers are broadly what we had thought. The later onset of winter is probably the one thing that's new to us. But otherwise, it's actually been broadly in line with what we had thought. Some of the delays in the sequencing of our New South Wales supply chain meant that we wanted to put it on the table now and be very consistent with it. I'm sure we'll come back to questions on the returns we expect. But we've kind of hoped it would be taken over a few years, and it gets -- it's been concentrated into '25, which is why we felt it was important for us to call out. But I look at it and say, heck, it was one hell of a quarter, it was challenging, but we delivered for our customers. And we've got just a modicum of momentum going into Q4, and that's the right place for us to be in the current very challenging context that we're operating.

Operator: Your next question comes from David Errington with Bank of America.

David Errington: Brad, look, there's a lot of numbers that you've thrown out and Michael, following Michael's area, there's a lot of nuances to take, but let's get back to the basics here on a 2-year stack. Now there's collectibles, there's this, there's that, there's Easter. At the end of the day, Woolies 2-year stack is 7.9% on a comp basis. You did 6.8% last year, you did 1.1% this year. Last year, Coles did 6.5%. This year, they did 4.2%. So, their 2-year stack is 10.7%. Yours was 7.9%. That's telling me there's execution problems. So clearly, in this quarter, you haven't executed well. You've been out-traded and you've had problems with your supply chain with availability. Now, the glass half full would tell me that's good because you've got areas that you can significantly improve on. The glass half empty shows, you've got problems because you're not executing well. And I'm trying to work out what's going on in the Woolies business because you can talk about this quarter cycling a high quarter. You can talk about this, you can talk about that. At the end of the day, if you look through all of that, the 2-year stack, you've been out-traded by Coles by nearly 3%. Can you explain, please, that difference? Because it's -- and they're facing the same consumer -- they're facing exactly the same. They've got the convertible, they've got their collectibles, whatever cycling, whatever, the 2-year stack, you've been out-traded by 3%. That's execution. Now, that's positive or it's negative. So can you help us here because this is, to me, the most important issue facing the stock today?

Brad Banducci: Thanks, David, and thanks for putting the ball on the table. We were out-traded in the quarter. Let me just own that. We think there are very clear reasons to it, and I think that's the key. We had a collectibles last year. Coles hadn't one, they've got one this year, we didn't have one. So, there was 2 collectible totals that you can feel at your own math on how much you think that's worth. It's probably worth in our calculation somewhere between 2% to 2.5%, but it depends on how you want to view it and how you view the math on it. We did have availability issues, in particular in Fresh in January and February. And the problem with availability challenges in Fresh is customers do need to go and shop somewhere else because it's not a substitutable product. So, we don't have those issues. Our new SAP UDF system is working very well. But those challenges sits up there. We've addressed them. We're in good shape now, but they sat there all mid-February, really, not ideal, but that's what it was. And we talked about it actually at the half year and you saw it in the numbers. So between the availability and the collectibles, I think there was material issues that we needed to work our way through. And then of course, the broader political context that we've had to operate in. So, those are the background issues. I can only talk about where we are today, which is we're in a good place as a team, good morale in our team, item growth in the business, consumer score is either very stable or improving and good plans for what lies in the year ahead. So, I don't know what else I can tell you except that.

David Errington: You haven't explained the difference in the 2-year stack. That's the problem and this is the issue. I'm trying to get to the bottom of why you've been out-traded so badly over a 2-year stack.

Brad Banducci: Well, I mean, David, I said, between the collectibles and availability, you can get to some meaningful numbers. And then you need to work your own way through the differences of how we report inflation, there's material differences in inflation calc that you see in there. I can only talk to our inflation numbers and what we've delivered and we're determined to deliver value for our customers. And we're determined to get inflation in a reasonable range. We can all debate what that reasonable range is. We've got there in the quarter. We thought that was critically important for us and for our customers and in the context in which we're operating in. We intend to hold it as we go forward. We're going to work on the shape of it slightly differently as we go forward. And we need to, of course, pay for it through our productivity plans, but that was our determination and we got there. I can't comment on how our competitors have done those things.

Operator: Your next question comes from Shaun Cousins with UBS.

Shaun Cousins: Brad, just a question regarding the Aus food business again. Just I think the share price reaction indicated it hasn't been well sort of received. And the result appears to indicate certainly for the period to the year to the end of April that you've got operating deleverage and it seems to be getting worse. What is Woolworths doing on cost out? And is there sufficient ambition in the business to reduce cost. Because in our discussions with investors, quite a few of them see a lot of OpEx and CapEx, and it doesn't seem to be delivering really strong sort of returns for them. And so then, hence, there's a hope that Woolworths could reduce costs to improve profitability in this half to offset the operating deleverage headwind that you're facing, please?

Brad Banducci: Yes, Shaun. I mean, we talked about it at the half year. We did expect to go into a negative deleverage scenario in the second half. And I hope we were very clear on that at the half year. And so we have, of course, in the background, we're working on our end-to-end productivity plan, which is well progressed and we need to deliver on that as we come to report our full year results. So that is our focus, has been our focus for 1.5 years. We expected this fund to come in a little bit earlier than it's come and you'll have to judge us on our delivery on it at the full year.

Shaun Cousins: But is there sort of greater ambition to cut costs and that it looks like there's some opportunity there in that there's some areas that the feedback we get from the trade about areas being sort of gold plated or over-investment in certain areas, be it WooliesX or the like there seems to be some areas that are ripe for cost out with the appropriate sort of ambition?

Brad Banducci: This is a sales result, as you know, Shaun. But what I can tell you is we have a good end-to-end productivity plan that is underway and we need to execute against. But like every corporate in Australia, I doubt I speak alone on this, when you get above store level and you get to the support office, there are very, very prudent cost savings going forward in the business. So, a thawing question. I don't think any corporate in Australia when they look into the year ahead is not doing something similar, whether it's dis-establishing roles, been very careful on discretionary spend, making sure that we are resourced appropriately for our priorities. So rest assured that, that is all underway as it should be.

Operator: Your next question comes from Ben Gilbert with Jordan.

Ben Gilbert: I just want to follow on similar trends to the questions, I don't think much disagreement that strategically, everything Woolies is doing makes a lot of sense on a longer-term lens. But it feels to me, and I don't want to come across this as critical or disrespectful, but it just feels like that the short-term trading mentality might have been lost in the business. And the context there is I look at Coles, how quickly they turned around some of the weakness they saw in some of the non-consumable dry lines or cleaning, et cetera. It feels like they did that more quickly than you. With the new commercial offices coming there, that seems like they're going pretty aggressively against ALDI and even Bunnings across pet. How do you balance up that within the business? And do you think you've got that short-term trading mentality where it needs to be? Or do you need to step that up?

Brad Banducci: You'd have to judge us how we deliver Q4 in that regard. But I don't think we don't have any fire in the belly right now. So, it's a good place for us to be. There's plenty of motivation at this table and usual comments for extra motivation. So, we're not lacking motivation, trust me on that. But we needed to get the customer side right first, and now we'll work through the rest of it. And we feel that we've made progress there so we need to work on shape and communication, credit for customers. Now, we need to make sure the rest of the thing comes together the way we needed to for the rest of the final quarter, so we repositioned ourselves right for F '25.

Operator: Your next question comes from Lisa Deng with Goldman Sachs.

Lisa Deng: My question is focused on eCommerce competition. So again, I think eCommerce growth contributed to over 100% of our top line growth in the quarter. But if we look at Coles, they basically doubled our growth rate off a smaller base, but even on dollar growth, it's very similar. They will have Ocado coming on by the end of financial year. And so therefore, they will be pushing even harder, right? So, how are we planning to compete in eCommerce, especially around Same Day because they will move their long-dated orders into Ocado and then have more room to compete on Same Day with us. How do we compete going forward?

Brad Banducci: Thanks, Lisa, and it is relentlessly continuing to improve our experience. And thought becoming Same Day is becoming immediately in the Same Day, that's where the real action is for us. We've seen, we now have our rapid response pick up solution in place. We're continuing to grow the fastest part of our business that is in growth is our sub-2 hour business or 1-hour business in the case of [indiscernible]. In order to execute all of those, you need to have great drive-thrus on the side of your stores. We're continuing to build those, expand those, make sure they're right. So, it's a relentless iteration that you need to do to keep up with the consumer right now, and that's where the focus is and that's where the growth is. Every time we create more convenience, more speed, we find that our consumers resonate with it even more. So that's really what we're up to. And then very importantly underneath it is building out which home-run, which is our own orchestration ability to make sure that we can manage the right trade-offs between our on-demand solutions and our truck solution and that is actually going very well for us and we're expanding that across the group. So, a lot going on, but that's really where the action is. I would also just call out one of the pronouncing in stand-up in online apart from it becoming on-demand, which is where the trend line is going for a major use case, not the total use case, just call out material growth in our Direct to Boot business irrespectively, which is a very hard business to do an issue all these boots, and we have got now in 736 stores. Sally, please correct me some or thereabouts. So that's really, really important for us. So, we are seeing that as a key item as well.

Operator: Your next question comes from Bryan Raymond with JPMorgan.

Bryan Raymond: Mine is on a similar line as some of the other questions, but maybe a slightly different approach. So, do you think you have your value positioning right at the moment? You've got volume growth well below population growth as you're losing share to Coles and most likely ALDI. Gross margins are [indiscernible] levels. Voice of the customer fell 8 percentage points sequentially and you had only 2% private label growth. What is the argument to not be reinvesting a meaningful portion of the gross margin uplift you've had over the past 4 or 5 years back into value to drive volume and to drive share because it feels like this is just continuing on a path which is leading to operating deleverage and erosion of the value proposition, which will take a while to get back. Has VoC ever been lower than 42 for you guys, like I'd just be interested to know if you think your business is in the right spot from a value perception and...

Brad Banducci: If you don't mind me saying, Bryan, I'm not going to follow all of your reports, we didn't agree, but you're a lot of fun. So, let me unpack that because I think that's at the heart of the question that you're asking, and I think it's a legitimate question. If you look at our parts index, it's in as good a place as it has been, if you look at our reported inflation, you see gaps against competitors and about how it starts, that means our pricing is where it needs to be in the market. And that's true we think against Coles and against ALDI and others. And so we are very diligent, very focused on that as we have been for the last 8 years. So, we feel that those fundamentals are sitting there. There's still work to be done and was alluded to earlier, maybe against the non-traditional competitors we have out there who have really been very aggressive on bulk packs, whether it's Bunnings or whatever the case may be. So, there's still some opportunity to work on that or a Chemist Warehouse, but we are where we need to be on price. And you see that in our deflation. And we're still not seeing major customers leaving us and we're still seeing -- so we're back in item growth, which is the key, and that's the key underlying test growth. Can we do a better job on communication of our price mechanics, Bryan? Yes. And we need to do and we are working on that. We can, of course, fine tune those mechanics and how they're working in the time of -- where the customer is actually more focused on dollar value than there are in percentage values. So there's a lot of work going on, on making sure we do a better job on those price mechanics. And then continuing to adjust our promotional program in the context of the world we're current living. Customers are managing very tightly to budgets and so the whole way that you think about your promotional plans needs to change and is changing at Woolworths. But we don't fundamentally feel like we're up the market in a price sense, not at all. It is just focus and execution, tough quarter, collectibles, some availability challenges, and that's not the way we see in the world in Q4.

Operator: Your next question comes from Craig Woolford with MST Marquee.

Craig Woolford: I might ask the question around the inflation measure. I really don't want to get bogged down in the technicalities of Coles measure versus Woolworths. But in that third quarter, Coles measure was 2.2% and Woolworths is minus 0.2%. Two things stand out. One is the lack of any improvement in volume in response to lower inflation for Woolworths. So, I'd be interested in your comments as to why you think that is, why there's no elasticity to reducing inflation? And then the other is just do you think the actual price indices for Woolworths have improved in that third quarter on your measures?

Brad Banducci: Yes. Thanks, Craig. If I kind of look at what's happened in Q3 and the first 4 weeks of Q4, there are 3 different periods. The first 7 weeks, we really had a tough start, some availability issues. And so we were slightly down in items. As we moved through the quarter and we went out of price establishment, which is something we're very focused on and we need to having our right promotional claim, which we started to do in the second half of February and into March, we moved back into volume growth. As we then doubled down on that gain into April, we saw a build in the volume growth. So, we are not ex volume growth right now, but we did start behind the April and that made it a tough quarter for us to dig our way through. So, I feel pretty good about that. In terms of the index, and I'll pass over to Natalie to talk about this as well. The index is as good a place as it has ever been in the last 8.5 years, and we're not very focused on measuring it. So that's not where our issue is. If we have an opportunity, so it's just in the communication of our pricing back to our customers. And I think we need to own the fact that a lot of the media and political narrative right now is not helping in that matter, quite frankly. And so there is -- you spot behind the 8-ball that there's a suspicion somehow we are doing something wrong. And so, [indiscernible] our customers, some of the biggest decreases in price we have in our Fruit & Veg, customers think that's where the prices have gone up. And just very interesting, that's clearly related to the broader environment than what we're doing. So we need to continue to just focus on that messaging, consistency to the customer. And hopefully, we should expect and hopefully, we'll see in this quarter more balanced narrative in the broader community on those issues. But perhaps Nat, given it's such a big topic, if you could just talk to the index.

Natalie Davis: Yes. Look, I would say that we're constantly -- every week, we look at the price index and we've held the same strategy around really making sure that we're providing meaningful value to our customers and particularly our customers that are in mortgage belts, younger families that we know are doing it tough. And we are seeing a strong response at the moment through our own brands. And just to give you some examples, our cleaning products, we have a clean laundry product, which is $5.50, which is great value. So, we're seeing a lot of customers when they're looking at laundry now switching into our brand and very high unit growth, double-digit unit growth in that product. We're seeing a really strong response to meaningful promotions as well. I think Brad mentioned we've done 10% of Meds Special, again, double-digit volume growth in that very strong response, the strongest promo uplift we've seen in business for the last 2 years. And young families, in particular are responding to that. We continue to see a really good and strong response to our Odd Bunch range in vegetables, so strong volume growth there and in particular, our value customers are buying more into vegetables over the last quarter as well. So, the strategy is very focused. We are very focused on providing that meaningful value and delivering a very consistent shopping experience for our customers. And I think over the quarter, the whole team responded very quickly to make sure that we're really focused on stronger availability. We've pushed a lot of stock into our stores in time for Easter. We looked at our trade plans as well going forward and we're just incredibly focused on making sure that every time a customer comes into our stores, we're providing that meaningful value. There's strong availability on the lines they're looking for and a faster checkout experience.

Brad Banducci: I mean one of the things I just would add to Natalie, listen to all the questions you have, and we talked about this at the half. The real challenge for us has been in non-grocery food. So, what we call Everyday Needs; personal care, pet care, household care and baby care. And actually, the one most challenged fun has been baby and that's true with Supermarkets as well as in BIG W. Actually, not in the online business, in the physical business in our stores. So that has been where the challenge is. That's where we've been having the negative growth. The rest of the business has actually been in pretty good shape in terms of growth. That's true in Australia and New Zealand and that's where there's a broader set of competitors that are there. As we've adjusted and we've just done a big brand sale that we're getting more tactical. Our proposed earlier comment, we're starting to see that come back into growth, and that's the key here. It's not the core food business, but it's all the other Everyday Needs that hang off that are critical for us in the overall basket, we try and sell to our customers. That is not happening online, but it is happening in store.

Operator: Your next question comes from Phil Kimber with E&P Capital.

Phil Kimber: I was just going to ask about, obviously, your price inflation has moderated significantly as has Coles. And one of the things a mentioned was around increased promotion, supply is more focused on volume given the prices and a lever that is available as much these days. Are you seeing the same thing? And maybe if you could give a sense of where supplier price requests are at relative to, say, recent history?

Brad Banducci: Let me answer the second question first, and then we'll come back to the first, but yes, price increases are materially reduced, they're still coming through, but they're materially reduced and they're more by exception and I think that's good. Of course, our focus, which I suspect is the focus for others is to now try and get price decreases just given the fact that a lot of the externalities that our supply community was facing have fallen away. And so we are looking to and expect some price decreases to come through and we want to immediately pass those through to shelf prices. We have started to see that happen, but it is extremely modest spot. But we would like to see that continue through the context of this quarter. If I then come back to promotions, consumers have become more promotional. There's no question on that. So, responses to promotions have gone up materially full. There has been a slight increase in the number of promotions, but it's more the response to the promotion that's been defining characteristic for us. And that's unsurprising given the pressure that consumers are under. But we just want to get the balance right between grade shelf prices and promotions. And so there's a lot of work to do, I think, in the quarter to rather, in many cases, rather reduce the shelf price than just run another primer.

Operator: Your next question comes from Richard Barwick with CLSA.

Richard Barwick: I just want to try and pull a few of these different threads together so that we're very clear. It sounds like in terms of the price index, as you measure it, you're as competitive as you've been in 8.5 years, but it sounds like that is not being recognized by customers. Is that fair to say? And so a part of your explanation was a negative narrative in the market. Are you suggesting that, that negative narrative is more negative towards Woolworths than it is towards your competitors, and that's a part of why you're not getting the recognition for your price competitors?

Brad Banducci: We don't have any excuses in our business, Richard. I think the key narrative to me would be there are 3 stories in -- between the Q3 and then the first month of April. And we saw a little bit behind the April, and we've dug our way through it. So I think that's been the key to us. What happens when you're the market leader is, when times are good, the market leader that you get a positive halo and when there's a more stressed context, you get more articles written about you and more things said about you. That's just the way it rolls. So, I don't think we want to use that as an excuse. We do, as I say, working our way through it. We know that our customers also look to give you credit for what's in the store, not what's written about in the press and we'll see that happen. We're starting to see that happen. And we need to start at delivering value, right? So we are, so we'll just work our way through it.

Operator: Your next question comes from Ross Curran with Macquarie.

Ross Curran: I might take up your invitation, Brad, to dig into the supply chain increase of costs. I realize it's a sales call, but can you just talk us through the step-up in incremental costs into '25 and '26?

Brad Banducci: Thanks, Ross. It gives me a chance to ask Steve to talk. So, I'm going to just pass over to Steve just to give the logic of why we've called it out now as well as how we think about it and how we see the benefits of it. Steve?

Stephen Harrison: Thanks, Brad. Thanks for the question, Ross. So, we wanted to call it out really as part of our continual updates on the progress of what are some pretty major supply chain automation and eComm automation projects. So these projects, if you put it in context, have been going for 3 to 4 years, and we are now getting to the point where they are going to really continue, as Brad described it, into, I guess, a more compressed time line than we had originally proposed just given some of the timing delays that happen through various reasons, in particular, both construction delays and weather through over COVID. It is important to point out, though, that there are not any material changes in our cost estimates for the project. So the capital cost or the return, it's just really around communicating now. We're much closer to going live what those costs are. And so as you would typically expect for these type of projects, there are a number of costs associated with commissioning the automation, dual-running costs of facilities and just the gradual ramp-up and subsequent productivity degradation in both sites until you get to ultimately the efficiency gains that we expect to. So overall, what we've tried to call out is that incremental -- $90 million to $100 million of cost in F '25 over '24, a similar type of cost in '26, so no incremental cost between '25 and '26, and then from '27 actually, you get the dual benefit of the commissioning and sort of ramp-up costs coming out and then you start to get your productivity starting to flow in. And then the first full year of productivity for us without some of those disruptions happens in F '28.So we remain actually very positive on the projects. We just felt like now was the right time to communicate what those impacts were going to be from the commissioning and ramp-up. But yes, we're very optimistic that we're going to deliver strong returns and strong productivity benefits for us once we get through this commissioning phase.

Operator: Your next question comes from Tom Kierath with Barrenjoey.

Tom Kierath: Just a quick one on pet stock. You're saying your sales are down in the quarter. Is that kind of where you were thinking the sales would be, a? And then b, are you still happy with, I think it's $60 million to $70 million of profit guidance that you've given us at the half for this half's profit?

Brad Banducci: I'll answer the first bit and then I'll pass over to Steve. Thanks, Tom. Look, for the pet stock team, it's been enormously disruptive period for them as it had to be an uncertainty, and they've had a whole series of thought that couldn't rebrand and couldn't touch as ACCC went through and engaged with them on divestiture. And so you couldn't have had a more disruptive period. So, it hasn't been made as one business, but a whole series of businesses within the group. So, I think their performance in that context is actually not bad at all. The major issue for them has not actually been the food business, but actually all the accessories and there's a lot of pressure on accessories in general in pet anyway. So, we don't feel we're in a bad position, but it will be good to move into actually pet stock being able to operate as a business. So, we have presented the divestiture package back to ACCC. We wait for their approval on that. As soon as we get past that, we can really go back to what we all want to do, which is run it as a partnership business and realize all the benefits that sit therein. As we engage and talk about that, then we find more benefits, not less. So, we're not feeling in a bad place. But as a specialty business, there is going to be some short-term pressure, as you might imagine, on some of the discretionary pet accessories. But Steve, over to you on the EBIT.

Stephen Harrison: Yes. I think, Brad, you've called out the important points around just the trading performance. Tom, sales call, we're not providing specific guidance on earnings on any of the businesses. So at this stage, ultimately, we're looking at guidance at the group level.

Operator: Your next question comes from Shaun Cousins with UBS.

Shaun Cousins: Maybe a question on BIG W. Can you just talk a little bit about the customer base? I know Kmart have called out that they see their customers roughly 1/3 evenly between low, middle and high income earners. Is that the same for BIG W? And maybe just -- you've got your 4 categories there as Centrals, Clothing Play and Home. Are they evenly split? Just trying to sort of shape the consumer exposure and then also the product exposure given you're getting different performance across different types of consumers and then different types of categories as well, please?

Brad Banducci: I think that's a great question, Shaun. I'll may pass over to Dan to talk about how our customer base is changing and then the performance of our 4 businesses in that context.

Daniel Hake: Thanks, Shaun, for the question. So, if I just talk about the customers, there's 2 things to note. One is the disproportionate share of BIG W sales into our [Sabre] Family segment in particular. And that's the segment while baskets has come off slightly and traffic has reduced slightly, that has managed their spend the most consciously, and that's where the sales decline is coming from. On the other hand, we're seeing actually quite a bit of trade down, double-digit growth in customer count on mainstream and premium customers. The thing to note though, if you look at the total share impacts on trading performances that a Sabre Family with kids to the house actually spend twice as much typically than those other segments. So right now, the way it balances out the trade into our business from managing premium is not enough to offset the pressure that budget customers Sabre families in particular are under. You asked about the one exception, by the way, just in terms of that is eComm and how it's changed over the course of the year. So one of the positive trends for this quarter is that with all the work we've done on extending ranges and offering more choice online, our eComm business is actually back in growth across both the first-party and the third-party ranges that we're offering. And that's been one of those stories consistently in customer growth in the eComm now. And then just talking to the 4 businesses, I'll give a little bit of context. Like we've got in terms of size, actually, Everyday Play, Clothing they're kind of all sizable reason that they're similarly split businesses and then home is the smaller business, which is very nascent and still growing. And so if you look at Every Day, beauty has done very well, household cleaning has done very well. We're just scratching the surface, I think, on being able to offer our customers some value in the spaces and they're responding very well to it. The big transformation here has actually been the rollout in success of our cosmetic shop-in-shops, which is a bit of a more service proposition that is giving customers a better experience, but also giving us some stock loss benefits there. So Every Day, it's actually been a good story for the year and for the quarter. Play is doing very well, very solid, and we see market share actually slightly up in that space. Toys and books are the categories that are doing incredibly well, which has got to expand into the other areas like stationary, sports, indoors and the likes of it to still to get to work there. Interesting anecdote there is the strength of own brands, summer sales, with just 150 products, which are quite a small range is in just a year, become the #3 brand and toys by units, right? So there's just a lot of opportunity to build on the strength that we've got there. And then home and clothing are the 2 businesses that have the greatest transformation opportunities and have the most challenges in the quarter and through the year. Home has gone through a major range reset. So, if you look at our stores, actually, Openook, our own brand there is much more prominently positioned. We've got lots of new entry price point ranges. There's been a lot of disruption, especially through Feb and early March, but you can see availability to get better now, and we're seeing some positive momentum in home. And in clothing is in a similar place in terms of transformation. It's a much more complex business and we've had a small -- a slow start to autumn/winter. We're just focused on playing the medium-term game here and making sure we continue to build capabilities such as smart clearance to get out of seasons effectively, but also making sure size-based availability is right and we replenish that. And we're actually quite excited too. We've got our first [indiscernible] so, quite excited by that innovation and for customers.

Operator: Your next question comes from Craig Woolford with MST Marquee.

Craig Woolford: Brad, I'll have a go at this, not sure will get an answer. But Woolworths elected to sell down their stake in Endeavour a couple of days ago, understandably around capital opportunity to return money to shareholders. Just interested in the choice on timing, like why sell down 2 days ago?

Brad Banducci: We wanted to do it actually be before the full -- before results. We even needed to do before results a long time after their sales results. So that was the reason really. Once the Board issue was resolved in December, January and [indiscernible] had transitioned on, and there was a lot more stability into the structure and the relationship with BMG and others, we felt that was the appropriate time to step out. And so then it became just a question of date. And we'll be very sensitive on not doing it too close to Q3 sales. So, the opportunity arose last weekend -- it was the first opportunity we had, we did it.

Operator: Your next question comes from Lisa Deng with Goldman Sachs.

Lisa Deng: Just a follow-up on Cartology. Can we talk a little bit of why it was in decline where, again, when we look at Coles, it actually was a very high growth for them. And then from a medium-term perspective, like how do we think about the opportunity, the size of the opportunity here?

Brad Banducci: So Lisa, we're actually [Technical Difficulty] Cartology business was in growth. We -- when you do a collectibles program, you go and sell that collectibles program to suppliers, and it becomes quite an important revenue source, which we've accounted to Cartology, and I assume Coles would do that to their media business. So, collectible do drive a lot of revenue for a media business. We didn't have one, Coles had one. So, I think that's what you're seeing there. Underlying performance in Cartology strong. The real focus for retail media businesses in our case, customer media business is actually online and actually digitizing carefully the traffic and not compromising the customer experience. That part of Cartology are going very well.

Operator: Your next question comes from Michael Simotas with Jefferies.

Michael Simotas: Just a question on private label, if I can. Are you comfortable with the private label range and price position that you've got at the moment across the kind of good, better, best peers because your growth in private label seems to be running materially lower than what Coles reported a couple of days ago?

Brad Banducci: Yes. I think, Michael, a good question. I mean I think -- and hopefully, everyone is where the numbers that you see reported by Woolworths and Coles include Fresh as well as Long Life. And I actually think you need to think about them very separately. Some of the availabilities in Fresh group might have are reflected them back in the private label numbers that your own brand number that you see. Actually, we -- when we look at our Long Life business, which is the key one to look at actually performed well, and that's where we're running 30%, 40%, in some cases, even more than that, lower than the market-leading brand and it's the way to deliver value for our customers, in particular in the context of the alternative of ALDI. And that part of the business is going well. That part of the business is always muted by the CO2 issue and crude is just a massive business, water and sparkling waters and so on. And so outside of that, we actually had some very strong growth in key categories there. So, we don't feel we were behind that. So, I think that's important. We have been more focused in the short term on our entry-level on brand just to deliver value. So, we haven't really unpacked the Coles results from the conversation and narrative on fire, to be honest. We'll be much more focused on the delivering value on entry. That said, our highest growth own brand was Macro, which is at, I think, 6% [indiscernible] and 9% for [Technical Difficulty]. And we're also focused, Michael, on the customer trends going forward and we've launched a pretty innovative dine-in range during the quarter, and we've just launched our with COOK range. So we're really focused on capitalizing a dine-in opportunity as customers do trade in. And so I think we're focused on both value and then also driving differentiation.

Operator: Your next question comes from Ben Gilbert with Jarden.

Ben Gilbert: Just one more for me. Just Brad, on those comments you made, that you changed your promotional program through Feb and then you've sort of carried that through into April, and I thought the comment around meat was interesting. So I know last time, I think you did a big drop in meat, you didn't see a volume response. So, is this just you being clearer and more targeted around your marketing? And given those early wins, is there a focus around stepping that up because it feels like you're very comfortable with pricing, but your messaging hasn't been right. I'm sort of trying to sense the time for what you're saying in April that you're feeling you're starting to get that right and getting some traction. Is that correct?

Brad Banducci: Thanks, Ben. I think what I meant to say with, corrected piece that feel free to jump in as -- you get a lot of price increases that are deferred over Christmas, they're coming in January. And so you've got to process those and you got to be very careful to establish price on those products. You can't immediately promote them. So, you have a bit of a dwell time, we've not been able to promote certain ranges just by the need to do proper price establishment. And so there is a bit of a lead in lag time. So, we really got back into our full promotional program in late January, early February. And so when we started to do that, we started to see the unit growth we wanted to see a bit. So, that has been the key. Our overall consumption-based price elasticity in protein is an interesting issue, which maybe we take another time. Meat is a very key line for families. And when you do promote it and you do get into the right price, you do see volume uplift. And that's certainly what we've seen since mid-February, we've provided great value against one of the key lines in our store. And with a bit more dining-in, that is a staple that is into many recipes, including one that I talked about in the media call, [Mexican], which is the highest growth communication we have right now in the group.

Operator: Your next question comes from Bryan Raymond with JPMorgan.

Bryan Raymond: Just on New Zealand, at all, it seems like there's been some reasonable progress there on the strategy. It hasn't been much of a focus today. Just keen to get maybe a quick update post the -- obviously, there was the changes made to guidance and write-downs, et cetera, at the half. Just keen to understand how you're tracking there in terms of that recovery now you've got the Woolworths brand in market there pretty well established?

Brad Banducci: Yes. I think we're now going to start delivering against it, Bryan. The customer resonance with the rebranding is good. The launch of that -- the Fresh fruit feeling has gone exceedingly well. The rebranding of one card into Everyday Rewards New Zealand has really resonated and more people have taken the program. The real challenge for us in Q4 is now to turn that into numbers. So, all of the indicators are good, but the numbers are still muted, as you can see in our results. So that's really what the focus is on Q4. We were very fearful that there might be somewhat negative dissonance to what we've done actually the opposite is true, including our team, they're really a like being part of Woolworths again and they just -- so everything feels good, but the proof will be in the numbers.

Operator: Thank you. There are no further questions at this time. I'll now hand the conference back to Mr. Banducci for closing remarks.

Brad Banducci: Thank you, everyone, for your challenges. I feel a lot better about where we are in the business and when we actually talked at the half year. So, I feel like we have gone through a challenging time. I think we've taken some learnings and we're making lots of adjustments. And we look forward to talking to you about those at the full year. Thanks very much.