The Woolworths Group Ltd (ASX: WOW) share price is dropping this morning after announcing some one-off costs.
What expenses did Woolworths reveal?
The supermarket business announced some significant items for FY21 as well as giving a supply chain update.
Woolworths said that it’s expecting to report a $57 million pre-tax significant item net gain in FY21.
There is a gain on its equity interest in Quantium of $220 million. After buying an additional 27.8% interest on 31 May, it will recognise this non-cash gain, reflecting the value of its original 47.2% interest compared to the previous carrying value, less transaction costs.
Next is $69 million of transaction costs. This relates to the demerger of the Endeavour Group and as well as the acquisition of PFD Food Services. The fees relate to advisor fees, legal fees and other regulatory costs.
Another line of costs relates to the supply chain. Woolworths said that NSW is a key market and the current fresh and temperature-controlled network is nearing capacity. As part of the plan to modernise its supply chain, the board has approved a new 76,000 sqm facility to be built at Wetherill Park to service over 280 NSW stores and replace the fragmented network. As a result, it’s expecting to close its distribution centre in Minchinbury in FY22 with redundancy costs of $44 million.
The design, construction and fitout costs of the new facility are expected to be approximately $400 million, with construction to begin in FY22. Completion is expected in FY24. It is aimed to result in ongoing range expansion and also deliver material transport and operating efficiency benefits from FY25 onwards.
Woolworths disclosed a final cost – a $50 million Metro Food store asset impairment. Given the impact on key transit traffic locations, such as CBD and public transit sites, sales have been and remain materially negatively impacted by COVID-19. This relates to stores and lease assets across 13 stores within the network.
However, Woolworths did say that most Metro stores are in locations that have not been impacted by a reduction in customer foot traffic and continue to perform well.
Summary thoughts on Woolworths
It’s a necessity for supermarket businesses to have as good supply chains as possible. However, extra costs aren’t always welcome for investors.
Woolworths is a decent defensive business, but I’m not sure that I’d want it into my own portfolio because of the low growth prospects and the pretty low dividend yield.
There are other ASX dividend shares that have more growth potential in my opinion.
