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Your Complete Guide To The Woolworths (WOW) FY19 Report

The Woolworths Group Ltd (ASX: WOWshare price is one to watch today after the company released its FY19 report to the market this morning.

Woolworths was founded in 1924 by Percy Christmas, with its first store opening in Sydney’s Imperial Arcade. Woolworths has gone on to become Australia’s largest supermarket business, operating Woolworths supermarkets in Australia and Countdown in New Zealand. It also runs the retail department store Big W as well as liquor stores Dan Murphy’s and BWS. With over 3,000 stores and more than 200,000 employees, it’s one of Australia’s largest employers. 

What Did Woolworths Report?

The supermarket conglomerate reported sales of $59.98 billion and EBIT of $2.7 billion for the period, both on a continuing operations basis. This represented a 3.4% and 5% increase, respectively (please note I’ve used normalised figures which remove the impact of the 53rd week in FY19).

Net profit after tax (NPAT) from continuing operations came in at $1,752 million, up 7.2% on a similarly normalised basis, while earnings per share (EPS) grew 6.8% to 134.2 cents per share.

Woolworths’ Divisional Breakdown

Woolworths’ Australian Food division reported strong sales growth in the second half of FY19, contributing to a normalised increase of 3.3% to $39.57 billion. EBIT came in at $1.86 billion, up 3.8%.

The New Zealand Food division saw sales increase by 2.4% to $6.7 billion while EBIT grew 1% to $296 million. Supported by the establishment of digital business CountdownX, online sales jumped 40% and had the highest online penetration of the group at 6.8%.

Endeavour Drinks, which includes liquor retailers Dan Murphy’s and BWS, posted normalised sales growth of 3.2% to $8.66 billion. However, EBIT dropped 9.7% to $474 million. Woolworths attributed this decline to the investment required to position the division for future success as well as a non-cash impairment of goodwill and other intangibles.

Big W reported a 4.2% normalised increase in sales to $3.79 billion for the period. While EBIT saw an improvement of $25 million before significant items, the division still reported an EBIT loss of $85 million for the period. This loss was towards the lower end of the recent guidance range of $80-$100 million.

The Hotels division increased sales by 1.8% to $1.67 billion, however, EBIT declined 0.5% on a normalised basis to $261 million.

The Woolworths Dividend

Woolworths declared a full-franked final dividend of 57 cents per share, bringing its full-year dividend to 102 cents. This is up 9.7% on FY18’s dividend, after excluding the 10-cent special dividend declared last financial year.

The Rask Finance video below explains share dividends:

Analyst Estimates

Bloomberg analysts were expecting profit of $2.29 billion. These analysts were also expecting a final dividend of 54 cents, so Woolworths beat the dividend estimate by roughly 6%.

Management Commentary

Commenting on Woolworths Group’s results, CEO Brad Banducci said, “In summary, we are pleased with the progress we made during the year and have exited FY19 with good momentum across the Group.”

Looking to FY20, Banducci said, “we expect the uncertain consumer environment and input cost pressures to remain as well as an impact from new enterprise agreements. However, we are well placed to respond to these challenges and are excited about what we can achieve together in F20.”

FY20 Outlook

Woolworths’ management said comparable sales growth in the Australian Food division for the first eight weeks of FY20 has been strong at ~7.5%, reflecting lower sales growth in FY19 and the success of the Lion King collectables program.

While management didn’t provide any specific targets, the group is anticipating strong online sales growth in Australian Food together with an increase in the rollout of Metro stores.

A further reduction in losses is expected for Big W as the turnaround continues and unprofitable stores are closed, and the merger of Endeavour Drinks and ALH Group is progressing with shareholder approval for the restructure proposed to be sought on 16 December 2019.

What Now?

Overall, these results appear to be in-line with expectations. The share price reaction to the release of Woolworths’ report suggests as much, with shares down 1% at the time of writing.

With Woolworths shares currently sitting on a dividend yield of ~2.8%, I think there are better options for both growth and income. For other dividend shares, grab a copy of the free report below.

At the time of writing, Cathryn has no financial position in any of the companies mentioned.

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