Woolworths to sell Dick Smith electronics

by Sonali Paul

MELBOURNE, Jan 31 (Reuters) - Woolworths, Australia's top supermarket chain, said on Tuesday it plans to sell its struggling Dick Smith electronics chain, as it missed market forecasts for food and liquor sales growth in the second quarter.

The move to cast off Dick Smith, which has suffered against no-frills chain JB Hi-Fi, helped send Woolworths shares up 2.5 percent in a flat broader market.

Woolworths said it had received a number of approaches for Dick Smith since announcing a review of the business in November and has appointed boutique firm Greenhill Caliburn to advise on the sale process.

"It's good to see management taking an inevitable decision to exit an underperforming segment," said Peter Esho, chief market analyst at broker City Index. Private equity firms would be the most likely bidders for Dick Smith, he said.

Woolworths plans to take a $300 million restructuring charge on the business in its first half 2012 results.

"A divestment of Dick Smith will enable the Woolworths group to focus more investment on serving customers in its core business," Woolworths Chief Executive Grant O'Brien said in a statement.

First-half sales at Dick Smith rose 0.7 percent to $731 million. The business last year achieved earnings of just $17.8 million on sales of $1.29 billion for a margin of 1.4 percent, well below the group's overall margin of 6 percent.

Woolworths reported second-quarter Australian food and liquor sales from stores open for more than a year grew 1.1 percent, which was below six analysts' forecasts for growth around 1.4 percent.

The company has warned since last August that it expected a challenging year to June 2012 with food prices falling, shoppers spending less and competition heating up against arch rival Coles, owned by Wesfarmers.

"The trading environment has remained tough with continuing deflation across key product categories combined with a continued cautious consumer," Tjeerd Jegen, Woolworths' director of Australian supermarkets and petrol, said in a statement.

Coles stepped up the battle against Woolworths this week, announcing it would slash fruit and vegetable prices by up to 50 percent, following price wars on essentials like milk, bread and toilet paper over the past year.

Total sales at Woolworths for the first half of the year June 2012 rose 5 percent to $29.7 billion.

Woolworths has said net profit growth would be limited to between 2 and 6 percent this year.