Woolworths reported FY24 EBIT of $3,223 million, up 3% on a reported basis, or 1.1% adjusted for the extra week. Second-half EBIT fell by 1.3%. While Australian Food EBIT was decent, New Zealand Food and Big W had very weak results. Online sales are accelerating for Woolworths, but the overall benefit to earnings seems limited given supermarket store profits declined in 2H24. Woolworths also provided guidance on capex at $2.0-$2.2 billion for FY25e.
Woolworths 3Q24 sales result was soft across the board. Will trends improve from here? We expect Woolworths relative performance to improve in each of its divisions in 4Q24e albeit the ongoing industry-wide slowdown will result in a very modest uplift. Woolworths weak growth relative to Coles is largely attributable to transitory factors. We expect 4Q24e comp growth of 1.2% for Woolworths and 2.5% for Coles. However, with less than 2% comparable sales growth, Woolworths will need cost savings to maintain earnings.
Woolworths 1H24 EBIT growth of 3% revealed a stark contrast amongst its divisions, with Australian Food EBIT up 10%, but NZ earnings down 41% and Big W down 60%. The challenge for the company is that its Australian Food sales are slowing rapidly. We also expect the outsized contribution from eCommerce and Digital & Data to moderate. The concern is lower food inflation crimping Food segment margins and a lower profit margin for Big W. With a change of CEO and weaker food inflation outlook, we expect the earnings outlook on the company to be moderated.
Woolworths’ trading update provided comfort that its core business in Australian Food is doing well, but Big W and NZ both have significant challenges that will take years and money to fix. Big W may close stores and NZ is more than three years away from decent margins in our view. The industry backdrop of government scrutiny and fading food inflation will mitigate expectations.
Woolworths 1Q24 sales revealed good growth in its Australian Food division but weak results in NZ and Big W. Woolworths Food division is the driver of group earnings and valuation and is likely to see a further moderation in sales trends over the next year. There is a risk that the positive mix effect on sales unwinds as consumers react to higher prices and income growth is squeezed.
Woolworths 3Q22 sales results show the company is holding onto market share gains in supermarkets and managing COVID-19 costs more tightly. The pace of inflation is picking up across the board, but the drag on volume is small. We expect supermarket sales trends to be consistent in 4Q22e and Big W should return to growth as it laps an easier baseline with less COVID disruptions.
Woolworths reported a solid FY21 result with EBIT up 14% to $3,663 million. Second-half EBIT growth was a little stronger with the unwind of COVID-19 costs and better earnings in Big W. While good earnings growth, underneath Woolworths had higher operating cost growth and elevated ongoing capex. Moreover, elevated capex will continue over the next two years in supply chain and IT.