The Woolworths Group Ltd (ASX: WOW) share price is down around 3% after releasing its FY21 third quarter update.
What’s going on?
Woolworths reported that its group sales were up 0.4% to $16.6 billion for the third quarter. That included group online sales jumping by 64.2% to $1.34 billion. Australian Food’s Woolies X e-commerce sales went up 90.5% to $878 million with penetration of 7.9% (up from 7.7% in HY21 and 4.1% in HY20).
Management said there were two halves to the FY20 quarter, compared to this FY21 quarter.
In 2020, there was particularly strong supermarket demand in the second half of the FY20 third quarter. Woolworths wasn’t able to beat this 6-week period (Australian food sales were down 9.6% against this 6-week period). However, for the first seven weeks of the quarter Woolworths saw 8.2% growth. For the whole quarter, Australian food sales were down 0.7%. Compared to two years ago, the average growth was 5.3%.
Woolworths said that while food customers are still shopping less frequently, the growth in the number of items customers put in their baskets is slowing. Customers are also shopping more on weekends, state-based performance is becoming more balanced and there is less divergence in trading across the fleet, other than in CBD and transit locations.
During the quarter, six new stores were opened and two were closed including two net Woolworths supermarkets and two net new Metro Food stores.
What about the other divisions?
Looking at the overall quarter, New Zealand food sales in NZD terms dropped 6.9% to NZ$1.79 billion.
Big W sales increased by 18.3% to $10.2 billion. Sales have remained strong, there was no slowdown in the final six weeks of the quarter.
Endeavour Drinks, which includes Dan Murphy’s, saw sales go up 6.3% to $2.4 billion. Hotels saw sales increase by 11.5% to $390 million. Hotels have started to recover as it cycles closures against the end of the third quarter in 2020, with growth of 54.4% in the final six weeks of the quarter.
That meant that the overall Endeavour Group sales increased by 7%.
Summary thoughts about the Woolworths share price
Woolworths said it’s going to be difficult to beat last year’s fourth quarter because of COVID sales last year. In the final quarter, in Australia food, total sales have been broadly flat compared to last year.
Endeavour Drinks sales in April were higher, but are expected to slow when compared to 30% growth in May and June. New Zealand food sales are down against 20% growth last year. Big W sales have slowed after strong growth last year.
All business sales are expected to slow except for the Hotels division.
Management said that the Endeavour Group demerger remains on track for late June.
According to CommSec, the Woolworths share price is valued at 26 times the estimated earnings for the 2021 financial year. To me, that doesn’t seem cheap for how much growth Woolworths is expected to make in the next few years.
