Woolworths Group Ltd (ASX: WOW) has stood down 8,000 workers following the government shut down on pubs, clubs, and hotels. Despite the surge in grocery shopping, the supermarket giant's hospitality arm has been crippled by the shutdown.
Woolworths hospitality business
Woolworths' Australian Leisure and Hospitality Group operates more than 300 bars, clubs, restaurants, and cafes. Many of these venues have been closed for the foreseeable future. Woolworths said it was trying to redeploy stood down employees to other roles. Some have been offered jobs at BWS, Dan Murphy's and Woolworths stores. Those not offered alternative roles will be paid personal leave, or where this is not available, COVID-19 leave, for up to two weeks.
With the closure of the hospitality arm of the business, Woolworths is facing a significant decline in earnings. In the first half of the year, the Hotels business contributed $919 million in sales, up 6.2% from the prior corresponding period. Earnings before interest and tax were up 39.7% to $224 million (post AASB 16).
Woolworths reported strong growth in food and bars over the half, with gaming comparable sales improving in the second quarter over Q1FY20. The company reported net profit after tax of $979 million in the first half, but it is unclear whether this performance can be repeated with the loss of income from its hospitality business.
Full year results uncertain
Woolworths said venue closures and changes to shopping behaviour in stores meant it could not estimate the impact of the coronavirus pandemic on its full year results. The retailer said sales growth across the group's retail business has been strong, with unprecedented demand for a range of products as customers consume more at home and stock pantries.
Increased demand led to well publicised shortages in supermarkets, as supply chains strained to breaking. Woolworths has reported that its teams are making good progress in improving the flow of product into stores. Early signs of moderation in shopping behaviour have been observed. Although the recent rise in grocery sales will somewhat offset the loss of hospitality sales, this effect may not be sustained.
Demerger mothballed
Given the government directive to shutter hotels for the foreseeable future, Woolworths has shelved plans to demerge the $10 billion liquor, hotels and gaming business until at least 2021.
Woolworths has initially hoped to complete the demerger, either through an initial public offering or trade sale, later this year. Ironically, demand for alcohol from Woolworths bottle shops has risen in recent days as people prepare for potentially weeks of lockdown. The Australian Financial Review reports that spending on alcohol has risen 20.4% year on year over the past week.
Future closures
Woolworths has said that in the event of further closures it is likely that most, of not all, of its stores will remain open. This suggests that the company expects Big W stores will remain open, however many believe that department stores such as Big W, Kmart, Myer, and David Jones will be required to close in the foreseeable future.
