The Woolworths Group Ltd (ASX: WOW) share price is up more than 4% after giving its FY23 result and providing a promising trading update.
Woolworths operates the Woolworths supermarkets, Countdown in New Zealand, Big W, the majority of the business that owns PETstock, and other businesses.
Woolworths share price
FY23 result
Here is the result for the 12 monhs to 25 June 2023:
- Sales rose by 5.7% to $64.3 billion
- Underlying EBITDA (EBITDA explained) increased 12.7% to $5.7 billion
- Underlying EBIT grew 15.8% to $3.1 billion
- Underlying net profit rose 14.3% to $1.72 billion
- Statutory net profit sank 79.6% to $1.62 billion
- Final dividend increased by 9.4% to $0.58 per share
Excluding direct COVID costs incurred in the prior year of $323 million, and not in FY23, group EBIT only increased by 3.4%.
The Woolworths Food division saw total sales rise 5%, with second half sales increasing 7.6%. The overall EBIT rose 19.1% and second half EBIT went up 20.1%. Excluding the non-recurrence of COVID costs, EBIT ‘only’ rose 9.5%.
New Zealand Food saw EBIT sink 21%, largely due to a 12% increase in wage costs, as well as weather events and ongoing supply chain disruptions that hurt profitability.
Big W EBIT declined so much in the second half that it was below management’s expectations as customers cut back on discretionary items, particularly in the fourth quarter. There was also extremely competitive levels of promotions and discounts. Second half EBIT was only $11 million, with full year EBIT of $145 million.
Outlook for the Woolworths share price
Woolworths said that in the first eight weeks of FY24, sales are showing a similar trend to the FY23 fourth quarter, with “solid growth” in the food businesses. However, BIG W sales declined year on year.
Australian food sales were up around 6.5% – inflation is moderating, with item growth in the low single-digits benefiting from “strong” volume growth in the fruit and vegetables category. However, costs will be “impacted” by material wage increases and inflation in energy and transport.
The company has “strong productivity plans” in place for the year ahead.
New Zealand food sales were up 4.5% in the year to date, though the short-term outlook remains “challenging”.
BIG W sales were down 6% year to date, though some categories like ‘every day essentials’ are “performing strongly”. The second quarter period, which includes Christmas shopping, could be key.
Woolworths has done well to grow its underlying profit, seemingly better than Coles Group Ltd (ASX: COL). If inflation continues, that could boost revenue, but may also hurt its costs. If inflation is reducing, this could be a sign that sales growth is going to slow.
There are other ASX dividend shares that I’d rather invest in which could provide stronger long-term earnings growth.