Blue-chip retailer Woolworths Group Ltd (ASX: WOW) share price will be on watch today after a strong first-quarter result.
Currently, the Woolworths share price is down 2.77% to $39.35.
Grocery spend booms as shoppers locked down
Key highlights from the first quarter ending 30 September include:
- Total sales of $16.1 billion, up 7.8% year-on-year (YoY)
- Total e-commerce sales of $1.88 billion, jumping 53.5% YoY
- Voice of the customer net promoter score of 51, flat YoY
Woolworths benefitted from increased at-home consumption, as Victoria, New South Wales and Auckland remained in lockdown for much of the quarter.
Additionally, pandemic restrictions incentivised shoppers to move online to avoid visiting in-person stores.
However, gains in supermarkets were offset against declines in the Big W chain, which saw sales decline 17.5%.
Despite the high demand for groceries, the pandemic wreaked havoc on staff and stores.
Woolworths incurred $102 million in additional COVID costs across cleaning, security, additional staff and supply chain.
Over 22,000 staff have been forced to isolate since the beginning of the Delta variant. Moreover, the Woolworths store network has had over 1,500 exposure sites.
Subsequently, Big W team members assisted Woolworths Supermarkets across stocking and logistics.
Woolworths noted it’s been a constant battle rebalancing stock between various distribution centres to secure inventory as demand increased.
“Q1 F22 has argubly been the most challenging COVID quarter for our business, with the Delta variant causing major disruptions to our supply chain and stores, especially in NSW and Victoria”.
Second quarter trends reverse
With New South Wales and Victoria reopening, the shopping trends from the first quarter have now been reversed.
Grocery sales have fallen, while Big W sales have increased.
The company provided no guidance for the second quarter or first half result.
My take
A solid quarter by Woolworths.
It’s leveraged to the reopening of cities through Big W. Grocery spending will fall when restrictions ease, but this will be offset by immigration.
I’d consider Woolworths to be one of the best dividend stocks on the market. Everyone needs groceries, it’s largely resilient to economic downturns and is the number one player in a duopoly with Coles Group Ltd (ASX: COL).
The business trades on a 2.8% fully franked trailing dividend yield. However, remember the company now excludes Endeavour Group Ltd (ASX: EDV), therefore the dividend may drop in the short term.
If you’re a long term investor looking for a relatively safe investment, Woolworths is a sound pick.
