Woolworths shows cracks under pandemic pressure

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Woolworths shows cracks under pandemic pressure


Woolworths Group (ASX: WOW) is a business on the front line in the battle against COVID-19 and has detailed FY20 performance on the 27th of August release of results. During the pandemic, WOW cost of doing business increased. Venue closures such as pubs and hotels offset panic buying, resulting in negative net profit after taxes (NPAT). 

Different factors have weighed in on financial performance for WOW FY20, with increases in sales for all businesses other than hotels by an 8.1 per cent increase from FY19 coming to AUD63,675 million. Group online-sales increasing by 41.8 per cent from FY19 to AUD3,523 million. However, a 51 per cent decline in hotels in Q4 detracted from this strong performance. As such, a 0.4 per cent decline in earnings before tax (EBIT) to AUD3,219 million was felt. Discounting hotels, EBIT would be up 5.8 per cent. FY21 outlook for hotels is very uncertain, and dependent on how the government responds to COVID-19.

The cost of doing business from FY19 increased by 24.1 per cent. Increases in staff members, new protocols and payments under enterprise agreements contributed to this. One-off payments cost AUD591 million, including repaying underpaid staff for the past 10 years. An AUD176 million modified supply chain infrastructure and AUD230 million helped to restructure the liquor and hotel business, Endeavour Group. As a result, NPAT fell by 1.2 per cent to AUD1,602 million.

Woolworths cut the final dividend due to the current macroeconomic environment. WOW cut the final dividend from 57 cents per share to 48 cents per share, generating a 94 cents per share full-year payout, or a 7.8 per cent decrease.

Post FY20, WOW has acquired a 65 per cent interest in PFD Food Services. 26 freehold properties are up for consideration for AUD552 million. The Australian Competition and Consumer Commission is pending approval, yet the deal is forecast to take place sometime at the end of the calendar year.PFD generates around AUD2.1 billion in annual revenue, with earnings-generating AUD57 million. Similar to Marley Spoon and Endeavour Drinks, this acquisition will allow for synergistic support within the WOW portfolio.

FY21 has started strong, with Australian food sales up 11.9 per cent for July up to the 23rd of August, as well as New Zealand food sales up 8.3 per cent, while Big W has performed impressively with 21.1 per cent sales up from consumers buying homewares. Finally, liquor sales have also risen by 23.7 per cent with a consumer shift to higher-end brands.



Caroline Wong

Caroline Wong is a Research Analyst at KOSEC – Kodari Securities. She writes on markets and focuses on ASX Top 300 companies. Email Caroline at c.wong@kosec.com.au.

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