News

Supermarkets shining light as Woolies delivers $1.75b profit

30/08/2019

DRIVEN by strong growth in its Australian supermarket operations, Woolworths has announced a net profit by $1.75 billion for the full year ended June 30 – up 7.2 percent on the year before.

Solid performance in the supermarket division, especially in the second half, offset a weak result for the company’s Big W and liquor divisions.

When the sale of its petrol operations and other one-off adjustments assets are added, full-year sales across all Woolworths divisions rose 5.3pc to $59.98b, while profit from continuing operations fell 7pc to $1.49b.

With more than 1000 stores nationwide, Woolworths is the largest red meat retail in Australia, accounting for almost one-third of beef and lamb retail sales.

Rising meat costs impact retail

The company’s supermarkets division continues to gather momentum at the expense of major rival Coles.

Australian supermarket operations generated a 5.7pc rise in earnings before interest and tax to $1.86 billion in fiscal 2019, although it contained an extra week of trading compared with the previous year.

Gross profit margins at the Australian food division softened slightly, which the company blamed on more stock being written off, wasted, stolen, cleared or marked-down during the year. Meat price inflation and the impact of fuel redemption costs being recorded in Australian Food also took a toll on margins in the supermarket operations.

Softer consumer sentiment

Woolworths CEO Brad Banducci warned that despite an improving sales momentum heading into the new financial year helping to lift Woolworths’ performance, there remained a number of concerns on the horizon in terms of consumer sentiment and the willingness of shoppers to spend money as household budgets was stretched.

“The consumer environment remains uncertain, with many of our customers experiencing cost of living pressures despite record low interest rates and recent tax stimulus, and input cost pressures remain for retailers and suppliers alike,” he told shareholders.

Mr Banducci said the supermarkets food division ended 2019 with good momentum after slower growth in the first half, with second half comparable store sales for 2019 up 3.9pc resulting in full-year like-for-like sales growth of 3.1pc.

He said like-for-like store sales for the first eight weeks of 2020 had been strong, up about 7.5pc, reflecting lower sales growth in the prior year and the success of the Lion King collectables program.

Woolies Vs Coles

In the supermarket wars, Woolworths has maintained its recent leverage over arch rival Coles, after being beaten by its competitor for much of the past ten years. On August 22, Coles reported a 9.1pc drop in full-year profit to $1.43b. Despite a 2.7pc increase in comparable supermarket sales to $30.9b, investments in supply chain improvements and the company restructure impacted Coles’ profits. In its first full-year report since demerging from Wesfarmers last year, Coles reported total revenue down 1.7pc to $38.4b.

Online sales continue to grow

Both Woolworths and Coles have reported further growth in online sales this year.

Woolworths’ online sales across all divisions increased by 30pc to $2.5b for the year ended June 30, , while on-demand delivery increased to a total 736 sites across the supermarkets, BWS and Dan Murphy’s stores.

Coles last week also reported online sales up 30pc, generating $1.1 billion in sales revenue, making the channel profitable for the first time in 20 years. Click and collect was more profitable than home delivery and has nearly completed roll out across the country in Coles stores.

In an important milestone Woolworths has now gone past 1000 supermarket outlets in Australia, with a net Australian Food stores (closures and new openings) now at 1024 stores.

Woolworths shares rose 0.5pc after yesterday’s financial announcements, closing at $36.38. Woolworths shares have risen 26pc in the past 12 months as investors increasingly sought defensive stocks more immune to an economic slowdown.

 

 

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