Sunday, April 14, 2024

Woolworths Group delivers F24 half-year results

At its F24 half-year results announcement, Woolworths Group sales increased by 4.4% to $34.6 billion with Australian Food delivering the strongest growth for the half. In Q2, sales growth rates moderated in the Food businesses as inflation continued to decline. However, sales trends improved in Q2 in Australian B2B due to cycling lower unprofitable meat sales in the prior year, offset somewhat by a modest slowdown in PFD sales growth. While still below the prior year, solid trading across Black Friday and Christmas led to an improvement in sales momentum in BIG W in Q2.

Australian Food sales increased 5.4% in H1 to $25.9 billion with Woolworths Food Retail sales of 5.2% driven by strong eCom growth and a return to modest item growth. Inflation continued to moderate during the half with item growth also slowing in Q2, particularly in discretionary categories. WooliesX sales increased 21.1% with Same Day and Direct to boot propositions driving online growth. Accelerator revenue grew by 124.9% largely reflecting the continued expansion of MILKRUN in sub-60-minute delivery.

Woolworths Food Retail total sales increased 5.2% in the half (6.6% ex Tobacco) to $25,648 million driven by item growth of 2.0% (ex Tobacco 2.1%) and moderating inflation. Item growth was mainly driven by increased demand for Fruit & Vegetables and Meat due to lower prices and improved availability. Comparable sales for the half increased 4.6% with Q2 comparable sales growth of 3.8% reflecting lower inflation and item growth than Q1.

Woolworths Supermarkets (store-originated) sales for H1 were $21,785 million, up 3.2% (4.6% ex Tobacco) compared to the prior year. Strong customer demand for eCom continued in the half with sales of $3,069 million, increasing 21.3% compared to the prior year. Christmas trading was strong in Long Life Food and Fresh with record sales, including Woolworths Food Company’s bakery range and leg ham which was available as part of the Low Price program. However, customers continued to reduce spending in discretionary Everyday Needs categories such as Pet, Baby Care and Home Essentials, particularly from November.

Average prices in Q2 increased by 1.3% compared to the prior year with a further softening from the Q1 increase of 2.0%. Providing value to our customers was the key priority during the half under the ‘We can help you spend less today’ banner. This included seasonal and Christmas Prices Dropped campaigns, more than 3,000 products on Low Price, as well as the Everyday Rewards ‘Boost your Budget’ campaign and the launch of Member Price. In Q2, Fruit & Vegetables average prices declined by 6.4% due to an increased supply of berries, capsicums and zucchinis, and Meat average prices declined 7.2% as beef and lamb livestock prices softened. Excluding Tobacco and Fruit & Veg, average price growth in Q2 was 1.9% compared to 4.0% in Q1.

Metro Food Stores (store-originated) sales increased by 9.1% to $794 million assisted by the opening of four new Neighbourhood stores and customer mobility supporting On the Go stores.

Woolworths Food Company’s Own and Exclusive brand sales grew 6.8% during the half with item growth of 4.0%. Long life sales increased by 12.2% driven by strong growth across Pantry, Household Care and Everyday Chilled, including milk and cream.

Woolworths Food Retail’s sales per square metre increased by 4.5% to $19,304 with sales growth higher than average space growth of 1.8%. During the half nine net new stores were opened and 23 renewals were completed. At the end of the half, the total fleet comprised 1,001 Woolworths Supermarkets, 103 Metro Food Stores, 714 Direct to boot locations, seven CFCs and two eStores, and 52 Mini Woolies.

Woolworths Group CEO Brad Banducci said: “The Group’s first half F24 result was mixed and reflects solid results from Australian Food and Australian B2B somewhat offset by the impacts of a very challenging trading environment on New Zealand and BIG W. Encouragingly, customer scores have held up with Group VOC NPS of 50, down one point on the prior year. Customer Care and shelf availability were the highlights; however, our customers’ concerns about the cost of living continues to impact our Value for Money scores which remains our key focus for H2.

“Importantly, inflation in our Food businesses continued to moderate during the half as favourable conditions in Fruit & Vegetables and Meat led to price reductions in these categories. Across the Group, we also helped our customers to spend less through our Low Price and seasonal Prices Dropped programs, personalised member Rewards, affordable Own Brands, digital tools and Weekly Specials.

“H1 F24 Group sales increased 4.4% with around 40% of Group sales growth due to eCom which increased 17.8%. Group EBIT before significant items increased 3.3% with the Group EBIT margin of 4.9%, unchanged on the prior year. In Australian Food, H1 sales increased 5.4% (Q2: 4.5%) and EBIT increased 9.9% with around two-thirds of Australian Food EBIT growth attributable to WooliesX (including eComX, Cartology and Services). eComX sales grew 21.3% in the half due to strong growth in our Same Day offers with eComX DAP up 185% driven by pick and delivery process optimisation and increased scale.

“In New Zealand Food, we made good progress in our transformation but a value-focused customer, moderating price inflation and material wage inflation led to an EBIT decline of 42% during the half to NZ$71 million. We are confident we are on the right path and have a strong customer plan to sustainably improve the performance of the business but recognise that it will be a multi-year journey. This was reflected in our decision to impair NZ$1.6 billion of goodwill in the half.

“Managing cost-of-living pressures remains the key issue for our customers and we are focused on helping our customers to spend less every time they shop with us. We also need to continue to invest in our teams and our platforms to strengthen the Group and deliver long-term sustainable outcomes for all our key stakeholders. As always, I would like to thank our hard-working team for their commitment and focus to building a better Group.”

Mr Banducci continued: “Australian Food H1 total sales increased by 5.4% to $25.9 billion boosted by strong eCom growth and items returning to modest growth. A material improvement in eCom profitability and ongoing growth in Media and Everyday services helped deliver an increase in Australian Food EBIT of 9.9%.

“Woolworths Food Retail (Stores and eCom) sales increased by 5.2% in the half (6.6% ex Tobacco) with item growth of 2.0% (2.1% ex Tobacco) mainly driven by eCom and increased demand for Fruit & Vegetables and Meat due to lower prices and improved shelf availability. Average prices continued to moderate over the half with Q2 average prices increasing 1.3% compared to 2.0% in Q1 and 7.7% in the prior year. Woolworths Food Retail EBIT increased by 8.2% with a 17 bps margin improvement on the prior year, primarily driven by the improvement in eComX DAP & EBIT as the EBIT margin for Stores remained stable in the half.

“Woolworths Food Company’s own and exclusive brand sales increased by 6.8% for the half with item growth in Long Life Food and Fresh as customers recognised the value offered by our own brands. The Pantry, Drinks and Household Care categories were particularly strong. Metro Food Stores sales increased 9.1% in H1 supported by the opening of new stores and the continued recovery in customer mobility.

“WooliesX H1 total sales increased 27.5% as we continued to provide more convenient options for customers with Direct to boot and Same Day propositions driving online growth. Improvement in fulfilment capabilities led to B2C Same Day fulfilment mix reaching 43% in Q2, with 85% of orders fulfilled within 24 hours of order placement. Cartology revenue increased 14.6% in H1 supported by growth in sponsored search through Cartology Promoted Products. WooliesX H1 F24 DAP & EBIT increased 132.3% to $168 million, with the DAP & EBIT margin increasing by 186 bps to 4.1% driving approximately two-thirds of Australian Food EBIT growth.

“Australian B2B sales for the half increased 2.8% and EBIT increased 45.7% with comparisons to the prior year impacted by exited businesses in F23. PFD’s trading performance remained strong with sales growth of 8.1% in H1 driven by new customer growth and a recovery in key segments including airlines and cruise ships.

“New Zealand Food had a challenging half impacted by slowing sales due to moderating inflation and item declines reflecting the competitive trading environment. New Zealand Food sales increased by 2.3%[1] for the half and EBIT declined 41.7% to NZ$71 million. Key transformation initiatives are already driving an uplift in customer scores and items returned to growth in Q2. We rebranded 34 stores to Woolworths New Zealand in the half with sales improvements relative to stores not yet rebranded. Despite this early progress, there remains much more to be done and we are committed to delivering more value and convenience for our New Zealand customers.

“BIG W’s sales declined 4.1% in H1 and EBIT declined by 60.0% to $54 million impacted by ongoing customer adjustments to cost-of-living pressures. Sales momentum improved modestly in Q2 (-3.1%) compared to Q1 (-5.5%) as customers shopped BIG W for their key seasonal events. Our Everyday range continued to resonate with customers, however, more discretionary categories such as Home underperformed as customers were increasingly cautious and traded down to lower price products. Despite this, closing inventory was below the prior year as we carefully managed seasonal stock through markdowns.

“In the Other segment, LBIT of $68 million was 19.9% below the prior year and benefited from lower advanced analytics costs and higher proceeds from property sales compared to the prior year, offset somewhat by a lower contribution from Endeavour Group following a partial selldown of our stake in December 2022.

“As previously announced, significant items of $1.7 billion relate to the impairment of goodwill in New Zealand Food and a mark-to-market loss following our assessment that we no longer have significant influence over Endeavour Group.

“We continued to make progress on our strategic agenda through strengthening our retail platforms including advanced analytics, digital and media, eCom fulfilment, loyalty and supply chain.

“Wiq co-created decision tools such as Next Gen Promotions and Quick Assist are delivering material improvements in performance, particularly in Woolworths Food Retail. Customers are increasingly engaging with us through our digital and online platforms with weekly average traffic to Group digital platforms reaching 29.3 million in Q2, up 17% on the prior year driven by growth in apps. Cartology is continuing to grow its retail media network leveraging capabilities from the Shopper acquisition through a new partnership with Vicinity Centres which will add more than 1,000 screens in over 50 centres by the end of F24.

“Another highlight during the half was the establishment of Woolworths MarketPlus, bringing together our marketplace capabilities across MyDeal, Everyday Market and BIG W into one team. In Q2 we launched BIG W Market, ahead of Black Friday with over 20,000 products, materially extending the range for customers. To support this, BIG W launched its first stand-alone centralised eCom fulfilment solution in partnership with NP Fulfilment in Eastern Creek, Sydney.

“In early January, we officially welcomed Petstock to Woolworths Group. Petstock will be part of W Living, which brings together BIG W, MarketPlus and HealthyLife as we continue to build out our general merchandise and specialty everyday needs ranges to better meet the needs of our customers.

“Our supply chain transformation is progressing well with practical completion of our Moorebank NDC achieved in August, two years after the initial sod turn and on track to be operational in H1 F25. Our Moorebank RDC is also progressing to schedule with high-bay racking completed in the half and on schedule to go live in F26.”

[1] New Zealand dollars.

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