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HY21 result: Should investors buy Woolworths (ASX:WOW) shares?

Woolworths Group Ltd (ASX: WOW) has just released its FY21 half-year result ending 3 January 2021. Is it a good time to buy shares?

What happened in HY21?

Woolworths reported two sets of growth statistics today due to the fact there were significant items included in last year’s result.

Sales grew by 10.6% to $35.8 billion.

The key Australian Food division saw improving customer scores in December, total first half sales grew by 10.6% whilst second quarter sales went up 8.3%. Woolworths online sales grew by 92% to $1.8 billion, representing 7.7% of total sales. Big W total sales went up 20.1%. New Zealand Food generated total sales growth of 4.3%.

Endeavour Drinks, which includes Dan Murphy’s and BWS, saw sales growth of 19%.

Before significant items, Woolworths’ EBIT (EBIT explained) rose 10.5% to $2.09 billion and net profit after tax went up 15.9% to $1.1 billion.

Australian Food EBIT rose 13%. Big W EBIT jumped 166% thanks to strong sales, gross profit margin improvement and good cost controls. Endeavour Drinks generated EBIT growth of 24.1%. New Zealand Food EBIT rose by 4.4%.

Including the significant items, Woolworths’ EBIT rose 18.7% to $2.09 billion and net profit grew 28% to $1.1 billion.

Woolworths dividend

The board of Woolworths decided to increase the interim dividend by 15.2% to $0.53 per share.

Endeavour Drinks separation

Separately to the released report, the supermarket business announced that it now plans to de-merge its Endeavour Drinks business in June 2021. It delayed the divestment plan because of COVID-19 and the various impacts.

Management believe this will lead to a simplified Woolworths business with a greater focus on its core food and everyday needs businesses. This will also allow the Endeavour Group to accelerate its own growth plans.

Outlook

Woolworths says that it has a medium-term annual target of opening 10 to 20 new full range supermarkets, 5 to 15 Metro Food stores and 3 to 4 new New Zealand supermarkets.

The CEO revealed that in the first seven weeks of FY21, sales have remained strong benefiting from higher at-home consumption. Australian Food total sales have increased by approximately 8% in the first seven weeks.

Woolworths is looking to continue to invest in its online offering for customers, though growth will slow as it cycles the peak COVID-19 demand in 2020.

The supermarket business has done very well over the past 12 months, but I think it’s clear that the growth rate will slow in the last quarter of FY21. However, the growth in online sales and new supermarkets could help growth for the medium-term. But the Woolworths share price looks quite expensive considering growth will be slow over the next 12 to 24 months. I’m not jumping in for my own portfolio right now.

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At the time of publishing, the author of this article does not have a financial or commercial interest in any of the companies mentioned.

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