Woolworths
(ASX:WOW) found profit-making a hard slog in 2021-22 – a 9.2% rise in group revenue – better than inflation – to just over $60 billion, while a record, could only be converted to a 0.7% rise in net profit to $1.5 billion for the year to June 30.
Continuing costs from dealing with Covid, inflation in selling prices and its costs (such as fuel and energy, paper, plastics) all took a bigger bite from revenue in the year.
And those costs and problem areas continue into the current half of the new year. The retailer’s NZ supermarkets business is facing rising challenges, Covid costs continue but will hopefully improve and inflation is hitting customers’ buying and product choices and forcing them to trade down, especially in meat and other fresh foods.
Online sales continued to grow strongly with a 39% jump to $6.263 billion in 2021-22.
Statutory net profit jumped 282.5% to $7.9 billion, but that reflected the book gain from the spin-off of drinks business Endeavour Group last year.
Investors produced the downward facing thumb and down went the shares by 3.2% to $36.20.
Sales at Woolworths supermarkets rose 4.5% to $45.5 billion in the year, while Big W revenues dropped 3.3% to $4.4 billion.
Total sales in the first 8 weeks of the new financial year were half a per cent under a year ago levels, but Big W has had a strong start to the new year, up nearly 30% on last year (when there were widespread lockdowns) as Australians had more freedom to return to bricks and mortar retailing this year.
The company noted three problem areas – continuing, but falling Covid related costs, rising inflation and its impact on customers and troubles in its NZ supermarkets operations as sales slide:
“Operating conditions in New Zealand Food remain challenging. Supply chain disruptions and team absenteeism are continuing to impact availability and the overall customer experience,” Woolies told the market on Thursday.
“Total sales in the first eight weeks of F23 have declined 1% on the prior year (three-year CAGR: ~4%) and item declines, materially higher costs and a very competitive trading environment are expected to impact performance for the year.
“We will provide a further update at our Q1 F23 sales release but EBIT for H1 F23 is currently expected to be materially below the prior year.”
Overall, Woolies said “team absenteeism and supply chain disruptions, while improved, continue to be above pre-COVID levels. However, subject to no further material COVID restrictions, COVID-related costs should substantially decline in F23 compared to F22 as customer behaviours continue to normalise and the operating rhythm of our business continues to improve”
“Inflation is beginning to impact all aspects of our customers’ shop and we are seeing a gradual change in customer shopping behaviour.
“While still very difficult to separate from the COVID-related impacts of the last two and a half years, we are seeing some customers trade down from beef into more affordable sources of protein and trade across from fresh vegetables into more affordable frozen and canned offerings< Woolies said in its commentary
Investors will see a final dividend of 53 cents a share, fully franked, bringing the full-year payout to 92 cents per share, up 1.1% on last year.
CEO Brad Banducci said the tough trading environment, which included COVID-19 disruptions, supply chain issues and widespread flooding across the nation resulted in a “financial performance that was below our aspirations for the year”.
COVID absenteeism and supply chain challenges are still making themselves felt, but the business is hoping that COVID-related costs should substantially drop from next year as long as no further trading restrictions come into effect.
“(W)e expect the trading environment to remain volatile and challenging due to endemic COVID disruptions, ongoing supply chain challenges, higher costs across our business and cost-of-living pressures for our customers.
“However, we are increasingly more agile and purposeful in responding to these challenges and are focused on improving our underlying operating performance across all aspects of our value chain after three years of disruption.”
