Woolworths Group Ltd (ASX:WOW) shares sink lower on results release

The Woolworths Group Ltd (ASX:WOW) share price has dropped lower today after its full-year results release…

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Woolworths Group Ltd (ASX: WOW) share price has started the week in the red following the release of its results for the 12 months ended June 30.

In morning trade the retail conglomerate's shares are down 2% to $29.08.

Here is a summary of how it performed in FY 2018 compared to a year earlier:

  • Sales from continuing operations rose 3.4% to $56.7 billion.
  • Earnings before interest and tax increased 9.5% to $2,548 million.
  • Net profit after tax of $1,676 million, up 13.1%.
  • Net profit after tax from continuing ops climbed 12.9% to $1,605 million.
  • Earnings per share of 123.4 cents.
  • Final dividend of 50 cents per share and a special 10 cents per share dividend.
  • Outlook: Soft start to FY 2019.

A key driver of profit growth in FY 2018 was the company's key Australian Food business. Sales grew 4.3% on the prior corresponding period to $37,379 million and earnings before interest and tax (EBIT) rose 9.6% to $1,757 million. Profits grew quicker than sales due to a 63-basis point rise in the segment's gross margin to 29.1%.

The segment achieved strong comparable sales growth of 4.3% for the full-year but this moderated as the year went on. Fourth-quarter comparable sales growth slowed to 3.1% and has softened further in FY 2019. So far in FY 2019 comparable sales are up just 1.3% in the Australian Food segment.

The company's Endeavour Drinks segment, which includes the Dan Murphy's and BWS businesses, had a solid but unspectacular year. It achieved sales of $8,271 million and EBIT of $516 million. This was an increase of 4.5% and 2.8%, respectively. Although the segment saw a small improvement in its gross margin, its operating costs rose at a quicker pace.

The ALH Hotels segment delivered a strong result. Sales grew 3.7% to $1,612 million and EBIT rose 11.1% to $259 million.

Things weren't quite as positive for its New Zealand supermarkets. The company's New Zealand Food segment delivered a 3.4% increase in sales to $6,396 million, but saw EBIT decline 8.2% to $284 million. Slight weakness in its gross margin and a jump in operating costs weighed on its performance.

But that performance looks good in comparison to the company's struggling Big W brand. Big W sales rose 0.7% $3,566 million but the brand posted a loss before interest and tax of $110 million.

Outlook.

Management expects continued progress from the BIG W brand with a further reduction in losses in FY 2019. But its financial performance will be driven by the key Christmas trading period.

As mentioned above, the Australian Food business has started the year slowly with comparable sales growth slowing to just 1.3%. Management has blamed the phasing-out of single-use plastic bags, competitive pressures, and food deflation for the weakness. It does, however, expects sales momentum to improve over the course of the first half.

Should you invest?

I didn't see enough in this result to make me want to pick up shares today, especially as they are currently trading at over 23x earnings.

In light of this, I would suggest investors hold out for a better entry point. The same applies to the shares of rival Wesfarmers Ltd (ASX: WES) which I don't feel offer a compelling risk/reward right now.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Share Market News

Oil industry worker climbing up metal construction and smiling.
Energy Shares

ASX 200 energy shares lead the market as US trade deals fuel optimism

ASX energy shares lifted 3.94% as more US trade deals led to improved market sentiment.

Read more »

A female ASX investor looks through a magnifying glass that enlarges her eye and holds her hand to her face with her mouth open as if looking at something of great interest or surprise.
Broker Notes

Top brokers name 3 ASX shares to buy next week

Brokers gave buy ratings to these ASX shares last week. Why are they bullish?

Read more »

A smiling businessman in the city looks at his phone and punches the air in celebration of good news.
Broker Notes

These ASX 200 shares could rise 50% to 60%

Brokers believe these shares could deliver big returns for investors.

Read more »

A girl is handed an oversized ice cream cone with lots of different flavours.
Best Shares

8 ASX All Ords shares that tripled in value in FY25

Just 8 out of the 500 companies making up the ASX All Ords achieved share price growth of 200% or…

Read more »

Broker written in white with a man drawing a yellow underline.
Broker Notes

Brokers name 3 ASX shares to buy today

Here's why brokers are feeling bullish about these three shares this week.

Read more »

Woman with a scared look has hands on her face.
Broker Notes

Bapcor shares fell more than 30% yesterday. Should investors buy in the dip?

Is this a value opportunity?

Read more »

A man sits thoughtfully on the couch with a laptop on his lap.
Broker Notes

Broker raises price targets on 2 ASX 200 shares to buy

Ord Minnett has just upped its 12-month share price targets on 2 buy-rated ASX 200 stocks.

Read more »

Man with rocket wings which have flames coming out of them.
Share Gainers

Guess which ASX All Ords stock just rocketed 34% on strong earnings growth

Investors just sent this ASX All Ords stock surging 34%. Here’s what’s happening.

Read more »