The Woolworths Group Ltd (ASX: WOW) share price is down around 4% after the supermarket business announced its FY22 result.
Woolworths FY22 result
The following numbers exclude the divested alcohol and pubs business Endeavour Group Ltd (ASX: EDV).
- Group sales rose 9.2% to $60.85 billion
- Online sales soared 39% to $6.26 billion
- EBIT (EBIT explained) dropped 2.7% to $2.69 billion
- Group net profit after tax (NPAT) increased 0.7% to $1.51 billion
- Final dividend per share, excluding Endeavour, rose 3.9% to 53 cents per share
Woolworths told investors how each of its divisions performed in both sales and EBIT, or operating profit, terms. It also said that the gross profit margin increased 0.35%, thanks to a 0.74% rise for Australian food, offset by a 0.28% fall for BIG W.
Australian food sales rose 4.5% to $45.46 billion. In the second half, Australian food sales rose 5.6% to $21.68 billion. Annual EBIT rose 0.3% to $2.42 billion.
Australian business to business sales rose 224.2% to $3.96 billion. Annual EBIT jumped 242.4% to $42 million.
New Zealand food sales rose 5.8% to NZ$7.56 billion, but it was a 3.1% increase in the second half to $3.54 billion. Annual EBIT fell 12,5% to NZ$316 million.
BIG W sales fell 3.3% to $4.4 billion. Annual EBIT plunged 68.2% to $55 million.
Payroll review
Woolworths has been reviewing its payroll to ensure it’s compliant with all requirements under relevant enterprise agreements, modern awards and other statutory requirements. It has identified areas of non-compliance.
The business has recognised a charge of $165 million pre-tax related to provisions for remediation of impacted team members.
The review is expected to be “largely completed” by the end of 2022. Woolworths said the review is ongoing and may give rise to further provisions as the review progresses to completion.
Trading update and outlook for the Woolworths share price
Woolworths said the start of FY23 is “clouded” as it’s comparing against the Delta COVID outbreak at the beginning of FY22 in its Australia food business. This impacted NSW, the state with the biggest population.
Staff “absenteeism” and supply chain disruptions, while improved, are still above pre-COVID levels. However, Woolworths is expecting COVID-related costs to substantially decline in FY23 compared to FY22.
Inflation is starting to impact customer choices. For example, people are buying less beef and going for more affordable sources of protein. They are also trading across from fresh vegetables to frozen and canned goods, according to Woolworths.
New Zealand is also experiencing difficulties with supply chains and team “absenteeism”. Total sales in the first eight weeks of FY23 have declined 1%. Higher costs and a competitive trading environment are expected to mean the New Zealand FY23 first half EBIT is “materially below” FY22.
BIG W sales have risen by just under 30% in the first eight weeks as it cycles against a period of reduced customer mobility.
My thoughts on the Woolworths share price
Woolworths is very good at what it does. But, it seems that the COVID boost to sales it got last year will now hamper its growth comparison in FY23. Inflation in FY23 is not just a one-way boost to revenue, it is also hurting on the cost side.
It’s pretty defensive business, but I think there are ASX dividend shares and ASX growth shares that have more to offer over the longer-term.
