The Woolworths Group Ltd (ASX: WOW) share price is in focus after the supermarket giant reported its FY21 result and a big share buy-back.
Woolworths FY21 result
Woolworths reported that in the 12 months of FY21 its continuing operations sales increased by 4.9% to $55.7 billion. Within that, Australian Food saw 5.4% sales growth to $44.4 billion and Big W sales increased 11.6% to $4.6 billion.
Continuing operations EBIT (EBIT explained) rose 11.1% to $2.76 billion. Australian food EBIT drove that growth, with EBIT rising 9% to $2.43 billion. Big W EBIT soared 344.9% to $172 million.
Continuing operations net profit increased 20.1% to $1.5 billion.
The reference to ‘continuing’ operations relates to the fact that Woolworths has divested Endeavour Group Ltd (ASX: EDV), which includes ‘Hotels’ and Endeavour Drinks (Dan Murphy’s, BWS and so on).
Statutory net profit increased 77.8% to $2.07 billion. A bit of that was due to the divested Endeavour Group’s operating profit that Woolworths owned before the divestment. Woolworths registered a ‘significant item’ gain after tax of $102 million, compared to a loss of $321 million in FY20.
Share buy-back and dividend
Woolworths also announced a $2 billion capital return in the form of an off-market buy-back.
What has the board decided on the price level? The buyback of the Woolworths share price will either be a discount of between 10% to 14% at 1% intervals to the market price, or the buy-back price, which will be determined as the lowest price Woolworths can buy back the targeted capital amount.
Woolworths said that the completion of the recent demerger of Endeavour Group and repayment of associated intercompany loans has provided a catalyst for a detailed review of capital management options.
Management said that the ability to return capital to shareholders reflects Woolworths’ strong balance sheet, its franking credit position and sufficient capital to continue to invest in its food and everyday businesses.
The board declared a final dividend of 55 cents per share, an increase of 14.6%. That brought the full year dividend to 108 cents, up 14.9%.
Summary thoughts on Woolworths and the share price
In the first eight weeks of FY22, Australian food has seen sales increase by 4.5%, despite 11.9% growth in the prior year. The lockdowns seem to have driven sales even higher.
Big W sales dropped 15.1% in the first eight weeks because of the lockdowns and it was comparing against strong growth a year ago.
The Woolworths share price is up a little in response to this update. The buy-back is good news for shareholders. But I’m not sure if today’s value represents good value. The strong COVID supermarket sales aren’t going to last forever.
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