UPDATE 2-Australia's Woolworths profit jumps, to spend more

(Adds analyst comment, share price, details)

By Victoria Thieberger

MELBOURNE, Feb 26 (Reuters) - Woolworths Ltd, Australia's biggest supermarket chain, beat forecasts with a 28 percent jump in first-half profit on strong food and liquor sales, and outlined plans to hold on to its top position.

Shares in Woolworths (WOW.AX) rose 4.5 percent after it said it will ramp up spending on store upgrades and announced plans for a credit card venture with British bank HSBC (HSBA.L).

"They are trying to capitalise on a very strong position in the marketplace and that's the right strategy to adopt, they'd be silly to take maximum profits now and ignore the future," said White Funds Management portfolio manager Angus Gluskie.

Woolworths, which runs 770 supermarkets, outlined further refurbishment and supply chain improvements, while Wesfarmers Ltd (WES.AX) begins a three-year overhaul of 740-store main rival Coles, which it acquired for A$20 billion ($18.5 billion) last November.

"Coles can make some fundamental improvements in how it runs its own business. But there's no doubt they are up against one of the world's best competitors in grocery," said Gluskie.

Woolworths said net profit for the six months to Dec. 30 rose to A$891.3 million, above forecasts of A$864 million in a Reuters survey, despite higher petrol prices and interest rates.

Woolworths maintained its full-year net profit guidance of a 19-23 percent increase. Analysts already expect a 23 percent rise in profit in the year to June 2008.

CREDIT CARD PLANS

Woolworths said it would increase its capital expenditure this fiscal year to A$1.8 billion from A$1.3 billion to speed up the upgrade of supermarkets to the new "2010" format.

It plans to overhaul 255 supermarkets this fiscal year, compared with 103 in the previous year.

Woolworths Chief Executive Michael Luscombe told a briefing the retailer has chosen HSBC to launch a branded store credit card later this calendar year.

Unlike the United States, the Australian market has few store branded cards in a A$37 billion credit card market. Last week department store chain David Jones Ltd (DJS.AX) picked American Express Co (AXP.N) for a credit card venture.

Luscombe said Woolworths continued to gain market share in the six months over Coles, but he declined to say how much, and he was cautious on the outlook given the headwinds of higher interest rates and petrol prices, and a sliding stockmarket.

"We haven't seen any downturn to speak of to be quite frank... but we are yet to see the full ramifications of what is happening globally."

Woolworths said it has absorbed some higher food costs, with its internal food inflation rate halving to 2 percent from 4 percent and below the official rate of inflation.

It is also expanding its home brand product range, which carries higher margins, and organic and allergen-free ranges.

In the first half, core food and liquor same-store sales rose 6.8 percent, up from 5.7 percent growth a year earlier.

Analysts are watching the performance at the Dick Smith Electronics chain and Big W discount retail stores to gauge any slowdown in discretionary spending.

In the first half, earnings at Big W rose 20.1 percent helped by store expansions and revamps, while consumer electronics including Dick Smith rose 5.9 percent. ($1=A$1.08) (Editing by Jonathan Standing & Jan Dahinten)