Following the announcement of Woolworths Limited's (ASX: WOW) half-year results this morning, it'll be interesting to see how the market reacts today.
For the six months ended 4 January 2015, Woolies reported a 1.9% jump in revenue to $32.68 billion and a net profit after tax, or NPAT, of $1.28 billion, down 3.1% on the prior corresponding period. Earnings per share fell 3.9% to 102 cents.
Excluding a $103.7 million provision for transformation costs of BIG W, group underlying profit rose 4.7% and the board declared a dividend of 67 cents per share, fully franked, up from 65 cents per share last year.
Year over year, most divisions saw decent revenue growth with management reporting strong EBIT (earnings before interest and tax) growth of 7.3% within the all-important Australian Food, Liquor and Petrol division.
Thanks to a focus on costs, Woolies' food prices deflated a further 1.8% during the half, including the effect of promotions and volumes, and the group achieve a gross margin of 25.46%, up 29 basis points on the prior corresponding period.
Over the Tasman, New Zealand Supermarket's drove EBIT (in Australian dollar terms) 12.8% higher, despite comparable store sales in New Zealand dollars falling 0.3% on the back of subdued grocery market conditions.
General Merchandise, which includes the BIG W and EziBuy brands, saw revenues fall 3.5% and EBIT drop 9% compared to the prior corresponding period, whilst EBIT for hotels was 11.8% lower.
Promisingly revenues from the Home Improvement division, which includes Masters and Home Timber and Hardware, jumped 24% year over year, although its loss widened to $103.2 million. Masters achieved an increase in sales of 28.5%.
Looking ahead the group said it has a path to meet NPAT growth of between 4% and 7% for the 2015 financial year but said necessary investments to deliver on long term plans will impact its second half results. The investment in Australian Supermarkets will be funded by a pipeline of cost savings in excess of $500 million.
The company finished by saying: "Factoring in the planned investment initiatives, our expectations are that FY15 NPAT will be towards the lower end of the current analyst NPAT forecast growth range for FY15 of 1.8-6.6%".
Should you buy Woolworths shares?
Analysts expectations were for a stronger profit result than what was achieved today (before restructuring costs) so there's every chance shares could be sold down today. However any weakness in Woolworths' share price could be a sound buying opportunity for investors who want to add a stable income stock to their portfolios. Indeed with solid single digit profit growth being targeted and shares sporting a fully franked yield of 4%, it's pretty hard to pass up.
