Is the Woolworths Group Ltd (ASX: WOW) share price a buy after reporting its half year result to 30 December 2018?
Woolworths was founded in 1924 by Percy Christmas, its first store was opened in Sydney’s Imperial Arcade. Woolworths is Australia’s largest supermarket business, it operates Woolworths supermarkets in Australia and Coundown in New Zealand. It owns the Endeavour Drinks business which includes BWS and Dan Murphy’s. It also runs the retail department store Big W. With over 3,000 stores and more than 200,000 employees it’s one of Australia’s largest employers.
Here’s what Woolworths reported in FY19
Woolworths recently sold its petrol business to EG Group, with management intending to return up to $1.7 billion of capital to shareholders. This business is now being recognised as discontinuing operations.
Woolworths continuing sales grew by 2.3% to $30.59 billion. The Australian Food division grew sales by 2.3% to $19.89 billion, with a 1.7% increase in sales per square metre.
Continuing EBIT grew by 1% to $1.45 billion (click here to learn what EBIT means). Australian Food EBIT grew by 4% to $937 million and Endeavour Drinks’ EBIT fell 6.4% to $290 million after focusing on range, service and customer experience. Despite Big W growing sales by 2% to $2.09 billion and its EBIT improving by $2 million, Big W still showed an EBIT loss of $8 million.
New Zealand BIT declined by 1.3% to $137 million and Hotels EBIT fell 1.5% to $161 million.
Woolworths net profit increased by 2.1% to $920 million and earnings per share (EPS) grew 0.9% to 70.3 cents. Total profit was $979 million, although Bell Potter analysts were expecting a profit of $1.088 billion.
Woolworths Dividend and Balance Sheet
Woolworths decided to increase the dividend by 4.7% to 45 cents per share.
The Board is still decided how to return up to $1.7 billion to shareholders, including an off-market buy-back, after the Petrol sale which should settle by the end of March 2019. The company said it has strong free cash flow to support ongoing business activities.
Woolworths Management Comments
Brad Banducci, Woolworths Group CEO, said: “It was a challenging half across all our businesses with subdued customer demand and volatile weather,”
“In Australian Food, sales momentum improved in the second quarter (Q2’19 comparable sales +2.7%) following a weather than expected first quarter impacted by the removal of single-use plastic bags and competitor activity.”
Is Woolworths a buy?
Woolworths said it expects the market to remain challenging, including ongoing input cost pressures, but the company remains confident of sales growth in the short term. However, Endeavour Drinks EBIT is projected to be below FY18.
I think Woolworths did quite well to grow continuing sales, EBIT and profit considering there was a reduction of around 2.5% of prices excluding tobacco in the Australian Food division. The capital return to shareholders could also be attractive for short term returns.
I imagine Woolworths will beat the returns of gold and cash over the next decade, but I believe there are more better shares to consider.
3 ASX Large Caps That Could Beat Woolworths
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