Woolworths Group (WOW)

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27 August 2020

Results 

Full Year 2020

Full Year 2019

Change

Revenue ($m)

63,675

59,984

+6.1%

Bloomberg Consensus ($m)

64,096

 

 

EBIT ($m)

3,219

3,232

-0.4%

Bloomberg Consensus ($m)

3,096

 

 

Net Profit After Tax (NPAT) ($m)

1,165

2,692

-56.7%

Bloomberg Consensus ($m)

1,610

 

 

Final Dividend ($)

0.48

0.57

-15.8%

Woolworths Group (WOW ) profits dragged down by increased costs     

What happened?

  • Woolies full year result was broadly in line with analyst’s expectations. The bottom line for the grocer saw net profit after tax (NPAT) fall by 54.5% to $1.16 billion. Significant items for the year included the costs associated with the NSW supply chain of $176 million, Endeavour Group transformation of $230 million and costs associated with the underpayment of worker’s salaries, which led to remediation cost of $185 million. Excluding one off items, NPAT from continuing operations fell by 8.4% to $1,602 million,  Normalised NPAT on the same basis decreased by 1.2%.
  • Sales for the period rose by 8.1% to $63.6 billion.  Earnings before interest & tax (EBIT) from continuing operations and before significant items, decreased by 0.4% on a normalised basis. Excluding the contribution of the Hotels business, EBIT on the same basis rose by 5.8%.
  • Hotels’ sales declined by 19.5% on normalised basis compared to the prior year to $1.3 billion.
  • WOW declared a fully-franked final dividend of 48 cents per share, bringing the full-year payment to 94 cents per share, a decrease of 7.8%.

Why did it happen?

  • Woolies’ is comprised of several businesses, spanning Australian & New Zealand food, Big W, Endeavour Drinks – which includes the Dan Murphy’s and BWS operations and the Hotels business.  All of Woolies’ businesses, reported solid sales growth, with the exception of Hotels. Government mandated closures of hotels in response to the COVID 19 Pandemic meant WOW’s hotels were closed for much of the final quarter of the year. This had a material impact on sales and earnings.
  • The Australian Food business is the earnings driver for Woolies and accounts for 66% of group sales. Sales in the first half of the year rose by 6.4%, compared to total sales growth of 10.4% in the second half of the year which driven by ‘COVID pantry-loading’ as households adjusted to government mandated lockdowns and movement restrictions. As a result the final quarter of the year saw total sales surge by 9.3%. Over the course of the full year sales rose by 8.3% to $42.15 billion, while earnings before interest & tax (EBIT) rose 6.3% to $2.23 billion. 
  • The impact of the pandemic had a marked impact on WOW’s online business. Sales through this channel surged by more than 43% over the course of the year, reaching $2.01 billion compared to $1.44 billion in the previous year. 
  • The costs of doing business (CODB) as a proportion of sales, increased to 23.9%, up 0.57% (excluding significant items). This increase reflected $290 million of costs in the second half of the year that related to COVID-19 compliance. This included the costs associated with the temporary employment of 17,500 employees to fill roles associated with the support safety and social distancing, additional warehouse capacity, scaling-up the online operations – particularly the expansion of Home Delivery, security, cleaning and personal protective equipment costs.
  • The remaining businesses saw the following performances: New Zealand Food’s Total sales for the year increased by 9.1% (normalised) to $7.2 billion; Endeavour Drinks’ total sales increased by 9.9% (normalised) to $9.3 billion for the year, with comparable sales increasing 7.9%. BIG W’s total sales for the year were $4.1 billion, a normalised increase of 10.5% on the prior year. Hotels’ sales declined by 19.5% on normalised basis compared to the prior year to $1.3 billion
 

Where to now?

  • Woolies has reported that sales in the first eight weeks of the new financial year have been strong across its operations except for Hotels.
  • Australian Food sales have remained strong in the first eight weeks of F21 with total sales increasing by 11.9%, although the resurgence in the pandemic and accompanying increased restrictions, particularly in Victoria, have seen costs increase.
  • COVID-related costs have been approximately $107 million leading the grocer to assume that elevated sales and costs will be a feature of the first half of the financial year.

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