Woolies to buy wine group as profit rises

Australia's largest retailer Woolworths said its first-half net profit rose 6 percent, slightly above forecasts, but warned the trading environment could remain subdued over the second half.

Woolworths said consumers were less confident and spending less, and its core supermarkets business outperformed weaker discretionary retail units in the first half.

It also announced it will buy direct wine marketer Cellarmasters from private equity firm Archer Capital for A$340 million ($458 million). Woolworths already owns the Dan Murphy and BWS alcohol outlets.

Woolworths, which also owns discounter Big W and electronics chain Dick Smith, said net profit before one-offs rose to A$1.16 billion, from A$1.095 billion a year earlier.

That tally was narrowly above analyst forecasts of A$1.155 billion. Woolworths warned, though, that a  ''degree of uncertainty'' hangs over the next six months of trading.

Revenue rose 4.2 per cent from a year earlier to A$28.42 billion.

The company will pay an interim dividend of 57 cents per share, up from 53 cents in the previous corresponding period.

In January, Woolworths cut its earnings growth forecast for fiscal 2011 by as much as half, predicting cautious consumers would continue to spend less.

Supermarkets rise

Core Australian supermarkets earnings rose 8.7 per cent in the six-month period, trailing well behind its smaller rival Wesfarmers, which last week posted an 18 per cent jump in earnings at its Coles supermarkets as a turnaround strategy paid off.

The two chains have been locked in a price war to win over customers, both recently cutting milk prices to just A$1 a litre.

Woolworths' units Big W earnings slumped 17 per cent in the half and Dick Smith dived 42.2 per cent, reflecting discounting, price deflation and sluggish consumer spending that has eroded sales at most retailers.

Consumers, hit by rising mortgage rates last year, have chosen to save more and even deep discounts on discretionary goods are having limited impact in luring shoppers.

Woolworths shares have slipped about 1.2 per cent since the start of the year, underperforming a 3.6 per cent gain in Wesfarmers and a rise of about 2.3 per cent in the broader Australian market .

In response to press speculation that Chief Executive Michael Luscombe could be preparing to depart, the company said any change to the CEO position would be made well in advance of succession taking place.