Saturday, June 15, 2024

Woolworths Group announces strong full year results

Woolworths Group has reported group sales of $64.3bn in its full year results, up 5.7% from F22. Group e-commerce sales was up 0.8% to $6.592m.

Woolworths Group CEO Brad Banducci says, “The 2023 financial year marked a return to relative stability after several years of material Covid-related disruption. This was most evident in the ongoing normalisation of shopping habits with customers shopping more frequently and increasingly on weekends and evenings. Despite the more stable environment, our overall customer experience was inconsistent, impacted by lingering supply chain challenges, and more recently by the impact of inflation on value for money perceptions. While overall customer demand has been remarkably stable, we are increasingly seeing our customers become more careful in their spending patterns, particularly our Saver Families, and in more discretionary categories.

“F23 Group sales increased by 5.7% (4-year CAGR: 7.1%) with sales momentum increasing through the year as we cycled Covid impacts in the prior year and inflation remained elevated. Higher sales, an improved operating rhythm, the absence of Covid costs, and the benefits of ongoing investment in recent years led to Group EBIT growth of 15.8% for F23 (4-year CAGR: 7.4%). However, excluding direct Covid costs incurred in the prior year of $323 million, Group EBIT increased by 3.4%,” Mr Banducci said.

“Looking ahead to F24, we expect food inflation in Australia and New Zealand to continue to moderate but will likely remain elevated in some packaged categories. We also expect the consumer environment to remain challenging with customers continuing to cut back on non-essential items. We remain committed to investing in our customers to deliver increased value and convenience; our teams to help them manage their own cost-of-living pressures; and in our platforms including our store network and supply chain, to create a better, safer and more sustainable future for all of our stakeholders.”

F23 Group summary

Performance overview

Mr Banducci continued, “While our customer scores were largely stable over the year, and improved in Q4 relative to Q3, they were below our aspirations and impacted by ongoing supply chain disruption, market-wide supply driven inflation and the impact of customers returning to shopping more on weekends and the evenings. Pleasingly, Customer Care remains our highest Store-controllable Voice of Customer metric, demonstrating the continued efforts of our team. Another highlight was the improvement in Online customer metrics as well as improved Availability scores in Q4 for Woolworths Food Retail, reflecting better Fruit & Vegetable supply. Team scores also improved during the year with a strong improvement in Group Voice of Team largely driven by improvements in store team advocacy.

“Australian Food total sales increased by 5% (4-year CAGR: 5.8%) in F23 with H2 sales increasing by 7.6% (4-year CAGR: 5.9%). In H1, sales growth was impacted by cycling higher growth in the prior year due to Covid-related lockdowns, with H2 sales growth reflecting elevated inflation. EBIT increased by 19.1% (4-year CAGR: 8.4%) with H2 EBIT increasing by 20.1%. Excluding the material impact of direct COVID costs in F22, EBIT increased by 9.5% for the year,” he said.

“Woolworths Food Retail (stores and e-com) sales increased by 4.8% (4-year CAGR: 5.7%) with H2 sales increasing by 7.4% (4-year CAGR: 5.8%). Sales growth in H2 was driven by Woolworths Supermarkets and Metro Food Stores store-originated sales and e-commerce sales returning to strong growth. In Woolworths Supermarkets, industry-wide cost

pressures continued to fuel inflation but pleasingly, average price growth began to moderate in H2 with Q4 average price growth of 5.2% driven by deflation in meat and fruit and vegetables. Woolworths Food Retail EBIT increased by 18.3% driven by improved promotional effectiveness, category mix benefits, an improvement in productivity, and the absence of Covid costs. This helped to offset significant cost inflation primarily driven by wage increases and higher depreciation.

“Metro Food Stores had a strong year with sales growth of 21.6%. Increasing customer mobility, new store growth and enhancements to our existing format all contributed. In Woolworths Food Company (WFC), own and exclusive brand sales increased by 5.4% with sales momentum accelerating over the course of the year. We saw strong growth in more affordable pantry essentials such as rice, pasta and drinks as well as value-added ranges such as Macro, COOK and BBQ. Our own and exclusive brands play a key role in providing value for our customers with inflation materially below the overall store inflation in F23, equivalent to approximately $50 million in additional annual investment delivering increased value for our customers,” Mr Banducci said.

“At our H1 results, we disclosed the performance of WooliesX (e-commerce and our other digital businesses) separately for the first time as part of Australian Food. This was to provide more transparency on WooliesX’s performance, where we have prioritised investment in recent years, to meet the very strong growth in customer demand for digital, loyalty and e-commerce services.

“WooliesX had a strong second half after a challenging first half, with F23 total sales increasing by 5.6% and DAP & EBIT up 23.1% on the prior year. Express and same day delivery services continue to grow rapidly which helped drive an e-com sales increase of 13.2% in H2 after a 5.8% decline in H1. Cartology grew sales by 29% (including shopper) for the year despite a more challenging advertising market with strong growth in everyday needs categories,” he said,

“In Australian B2B, F23 sales increased by 17.4% with H2 growth remaining strong at 12.0%. PFD’s sales grew 28% in F23 due to strong trading with existing customers and new customer acquisition. However, the sale of Summergate and Fresh to Go (part of PFD), and the wind down of our international business in H2 impacted the result. F23 EBIT

was $63 million, up 13.0% on the prior year but excluding the impact of trading losses and exit costs on discontinued businesses, EBIT would have been $105 million, an increase of 68.7% on the prior year.

“It was a challenging year for the New Zealand Food team which was reflected in EBIT declining by 21%[1] on the prior year despite a 4.6% increase in sales and a reduction in Covid costs compared to the prior year. The lower EBIT was primarily due to a 12% increase in wages in July 2022 to address cost-of-living pressures for our team but there were also several external factors impacting the results including weather events and ongoing supply chain disruptions,” Mr Banducci said.

“Pleasingly, stability improved in the second half with H2 EBIT of $127 million slightly higher than H1 EBIT of $122 million and up by 10.3% on the prior year. In F24 we will continue to invest in value for customers; our team; stores; and supply chain to improve our overall customer experience and deliver improved returns over the longer-term for our shareholders. The recently announced rebranding of Countdown Supermarkets to Woolworths New Zealand, and the transition of Onecard to Everyday Rewards, provides focus and energy to our plans.

“The trading environment for BIG W changed dramatically between H1 and H2. After delivering a strong H1 result, we indicated in February that the H2 EBIT contribution would likely revert to more typical seasonal patterns. H2 ended up below our initial expectations as customers cut back on discretionary items, particularly in Q4, and the sector became extremely competitive with higher levels of promotions and discounts. While F23 EBIT of $145 million more than doubled on the prior year, H2 EBIT of $11 million was below H2 F22 due to flat sales, higher promotional activity across the market and rising unit costs driven by team wage investments. Pleasingly, our customer scores remained strong, including value for money metrics, and digital interactions continue to grow. We also launched Cartology in BIG W during the year with 175 screens in store by year end,” he said.

Group strategic highlights

“Our F23 result was a culmination of the realisation of benefits from our ongoing investment in recent years as well as a recovery from a very challenging F21 and F22 which were impacted by material COVID costs. While continuing to refine our new store blueprint and progress our store renewal program, we have also seen strong sales growth from newer businesses and adjacencies such as PFD and Cartology, supplemented by our acquisition of Shopper Media in H1. “Investments in analytics, digital and eCommerce have built a strong platform for growth for the Group. wiq worked in partnership across the Group to deliver high priority analytics use cases including Next Gen Promotions, while Digital and eCom had a strong H2, with WooliesX eCom sales increasing by 13.2%, and digital visits to Group platforms increasing by 21.1% in Q4,” Mr Banducci said.

“Our supply chain transformation continues to progress as planned with Melbourne South Regional DC (MSRDC) consistently delivering 2.4 million cartons per week and major new facilities in Sydney under construction. Our Auburn eCom fulfilment centre is expected to open in late 2024 and the initial construction phase of our new Sydney NDC in Moorebank is now complete with an operational launch date planned for H1 F25.

“In addition to Shopper Media, we completed the acquisition of MyDeal and announced the acquisition of a 55% interest in Petstock Group which remains subject to ACCC approval. In May, we acquired the MILKRUN brand to accelerate our sub-60 minute convenience offering with Metro60 rebranded to MILKRUN.

“We also took the difficult choice to exit and restructure some businesses during the year where there was no clear path to profitability or appropriate returns over the medium-term. The sale of Summergate was completed in April and we closed Woolworths International in June, as we reorganised the way we approach the international market,” he said.

Group sustainability highlights

“Sustainability is a core element of our Group Purpose. Highlights during the year included the announcement of a fully electric home delivery vehicle fleet by 2030, the removal of reusable plastic bags for sale in stores nationwide, and donating the equivalent of over 34 million meals to people in need through our food rescue program. We also launched our latest Reconciliation Action Plan in June which details our commitment to better the lives of our Indigenous communities through initiatives such as tailoring Indigenous recruitment approaches to support an increase in Indigenous team members joining Woolworths Group,” Mr Banducci said.

“In August, we announced our updated commitment of reducing hunger and food waste, working together with our partners to make a meaningful difference to this critical issue. We also recognise the role we play as part of our value chain to drive solutions that reduce food waste, and we are donating an additional $9 million with our food rescue partners across Australia and New Zealand, including OzHarvest, FoodBank, and FareShare. In addition, we will partner with industry to invest in new technologies to ensure excess food at farms can get to more kitchens across the country.”

Investing in customers, team and platforms

“We are continuing to invest to deliver value for our customers including actively helping them to Spend Less this Spring. Some examples include our latest seasonal ‘Prices Dropped for Spring’ campaign, in-store Member Prices providing immediate offers and more Own Brand products added to our ‘Low Prices you can Rely On’ range. We are also encouraging customers to use the online tools we provide to help them spend less by using shopping lists, filtering for the best unit price, and encouraging customers to use up what they already have in the fridge or pantry at home,” Mr Banducci said.

“We will also continue to invest in our team and in July we increased the retail wage paid to our store teams in Australia by 5.75%, in addition to a 0.5% increase in superannuation. Wages for our New Zealand store teams will increase by 7% from 1 July after a 12% increase in July last year. Together this equates to an investment of over $400 million in our store teams across Australia and New Zealand in F24. Everyday Extra for team will remain a key feature of our team benefits program and will launch in New Zealand in 2024. We are also committed to offering our teams meaningful hours and embedding our multi-skilling and recently launched cross-store working initiatives. We will also invest capital expenditure of over $40 million in CCTV upgrades, team safety body-worn cameras and wearable duress devices to improve safety for our teams.

“We are committed to building a better business and to do this we will continue to invest in the most important areas to drive growth, increase operating efficiency and improve our resilience. Digital and analytics capabilities are only increasing in importance, and we will continue to build on the strong foundations and momentum we have,” he said.

“Our F24 capital expenditure budget is approximately $2 billion to invest in our store and e-com network, open stores in new communities, strengthen our supply chain resilience, and invest in technology to provide greater efficiency and better and safer experiences for our team.

“These investments are designed to strengthen the foundations of our business, deliver sustainable growth and create long-term value for our shareholders.”

Current trading and outlook

On current trading and outlook, Mr Banducci said: “Sales in the first eight weeks of the year have shown similar trends to Q4 with solid growth in our Food businesses but BIG W sales declining on the prior year.

“In Australian Food, Woolworths Food Retail sales growth for F24 to date remained strong at approximately 6.5%. Inflation has continued to moderate with item growth in the low single-digits benefitting from strong volume growth in fruit and vegetables.

“Costs in F24 will be impacted by material wage increases and inflation in energy and transport. However, we made good progress in F23 to restore our operating rhythm and have strong productivity plans in place for the year ahead. These include ongoing benefits from ensuring we have the right team available at the right time in our stores, initiatives to better manage stockloss, make things simpler for our store teams, and realise the benefits from our existing supply chain investments,” he said.

“We remain cautiously optimistic about the year ahead and are confident in the plans we have in place. However, EBIT growth in Australian Food in F24 needs to be viewed in the context of the above mentioned cost inflation and a strong focus on delivering value for our customers.

“New Zealand Food sales increased by approximately 4.5% in F24 to date. We are clear on the areas where we need to improve in New Zealand and are committed to investing where appropriate to ensure we continue to improve our customer and team experience. We are confident that this will lead to a better New Zealand business in the longer term for all of our stakeholders, but the short-term outlook remains challenging,” Mr Banducci said.

“BIG W sales momentum continues to be challenged with sales down approximately 6% in F24 to date. While BIG W is being impacted by the broader discretionary spending slowdown in Australia, some categories like Everyday Essentials are performing strongly. Loyal customers are continuing to shop with BIG W, and we are seeing some trading-in but customers are cautious, putting fewer items in their baskets. The outlook for the remainder of the year is uncertain and as always, trading in Q2 will be key to the full year results.

“Other costs in F24 are expected to be in line with F23 at approximately $250 million excluding Woolworths Group’s share of Endeavour Group’s earnings,” he said.

[1] New Zealand dollars.

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