Insights 25th August 2022

WOW's results hit by external factors as profits rise just 0.7% | Woolworths Group (ASX:WOW)

Supermarket giant Woolworths Group (ASX:WOW) reported its FY22 results today that have disappointed investors.

For the year, Woolworths reported group sales rose 9.2% to $60.85 billion, EBIT fell 2.7% to $2.69 billion, core NPAT increased just 0.7% to $1.51 billion, and eCommerce sales jumped 39% to $6.26 billion.

Investors may be selling out of Woolworths shares today as the company announced the final dividend paid to investors has declined to 53 cents per share from 55 cents per share last financial year. Excluding the Endeavour Group though, which Woolworths spun-off during FY22, the final dividend paid is 3.9% higher than that of FY21.

Woolworths noted the extremely challenging operating environment caused by supply chain disruptions, product shortages, team absenteeism and flooding led to an inconsistent customer experience and that such factors impacted financial performance to be below what they were hoping for.

On a group-basis, Big W’s FY22 EBIT was 68.2% lower than that of FY21 as many of the brand’s stores were closed in the first half due to COVID-19 restrictions, but the group had sales growth of 11.9% in Q4.

Woolworths retail had sales growth of 4.3% for the year, while WooliesX, the company’s B2C eCommerce division experienced sales growth of 42.3%.

Metro Food Stores sales increased 6%, while Australian B2B also had strong sales growth reflecting the acquisition of PFD at the beginning of the financial year.

New Zealand Food had a challenging second half due to material disruptions to stores and supply chains which slowed growth for this division, and as a result EBIT for FY22 fell 12.5%.

In terms of outlook and guidance for FY23, Woolworths said COVID-related costs are expected to continue declining in FY23, while food price inflation is showing no signs of moderation in the short-term. The company didn’t provide any clear financial guidance expectations for FY23.

On the broker front Citi maintains a buy rating on Woolworths with a price target of $42.50 per share after the results were released, with the broker saying it expects Australia should bounce back solidly and they are encouraged by Woolworths’ fourth quarter sales growth of 6%.