The Woolworths Limited (ASX: WOW) share price popped higher after the company announced its half-year profit result.
Here are key takeaways from the Woolworths half-year report:
- Revenue rose 2.6% to $29 billion
- Profit fell 16.7% to $786 million
- An interim fully franked dividend of 34 cents per share was declared
- Earnings per share dropped to 61.1 cents per share from 74.8 cents
Woolworths is a leading supermarket operator in Australia and New Zealand. It also owns Big W, hotels and a drinks business, which includes Dan Murphy's.
In Australian supermarkets, by far Woolworths' largest division, profits (before tax and interest) fell from $943 million in the same half-year period last year to $812 million. Meanwhile, the profit margin fell from 5.2% to 4.3%.
Across the pond, New Zealand supermarkets produced a profit of $155 million, up from $151 million last year. The hotels and drinks group businesses also produced better results. However, Big W reported a loss of $27 million, down from a profit of $73 million.
"We've made good progress on our five key group priorities during the half," CEO Brad Banducci said. "Particularly pleasing was the improvement in sales momentum in Australian Food, especially in the second quarter."
"This momentum gives us confidence that, while we still have a lot to do, we are on the right track," he added.
In the past year, Woolworths made the decision to exit its Home Improvement business, which included Masters and Home Timber and Hardware, and its petrol stations.
"The proceeds from the sale of our Fuel business will be used primarily to strengthen our balance sheet," Mr Banducci said.
Looking ahead, Woolworths is forecasting competitive pressures for the rest of its 2017 financial year.
"While we expect trading conditions to remain competitive for the remainder of FY17, we are focused on building the sales momentum we have achieved over the last six months as we work to restore sustainable growth in Australian Food," Banducci said. "While we expect trading conditions to remain competitive for the remainder of FY17, we are focused on building the sales momentum we have achieved over the last six months as we work to restore sustainable growth in Australian Food."
Should you buy Woolworths shares?
It's pleasing to see Woolworths' revenue rising. The company is doing what it can to revive its brand as a low-cost provider of everyday goods. However, that sales growth appears to have come at the expense of profit margins (as expected).
Indeed, this brings its supermarket profit margin in-line, or slightly below, that of its key rival Coles, owned by Wesfarmers Ltd (ASX: WES).
At today's prices, Woolworths shares trade around 20 times profits and a dividend yield of 3% fully franked. The company could raise profits from today's levels, however, I can't find a valid reason why its shares would be priced so highly.
Woolworths shares are not a buy in my book.
