Woolworths Group Ltd (ASX: WOW) shares are having a strong session on Wednesday.
In late morning trade, the retail giant's shares are up over 5% to $38.10.
Why are Woolworths shares shooting higher?
Investors have been buying the company's shares this morning in response to its FY 2023 results.
Woolworths impressed the market with a 5.7% increase in sales to $64,294 million and a 13.7% lift in net profit after tax (before one-offs) to $1,721 million.
The latter was underpinned by gross margin improvements. This was thanks to the absence of COVID costs across the supply chain, positive sales mix, and growth in new businesses.
This ultimately allowed the Woolworths board to increase its fully franked final dividend by 9.4% to 58 cents per share. For the full year, the company's dividend was up 13% to $1.04 per share.
Looking ahead, Woolworths' CEO, Brad Banducci, revealed that "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." However, he did warn that "costs in F24 will be impacted by material wage increases and inflation in energy and transport."
Broker response
The team at Goldman Sachs has been running the rule over the result and was impressed. In fact, its analysts believe that Woolworths' "high-quality 2H23 results supports further valuation premium vs peers."
Commenting on the result, the broker said:
WOW reported FY23/2H23 results largely in-line from sales to EBIT vs GSe and FactSet consensus. FY23 group sales came in at A$64.3B +6% YoY and EBIT A$3.1B +16% YoY. This implies 2H23 group sales was +A$31.1B, +7.5% YoY and EBIT of A$1.5B was up 13% YoY and was 5% vs GSe.
We see this as a high quality set of results, and contrasts with COL 2H23 sales +5% YoY and EBIT -8% YoY. The company noted higher stock loss had impacted GPM though this was more than offset by other cost/revenue initiatives and positive mix. FY23 Food GPM +76bps to 28.1% vs COL of 26.4% on re-stated comparable basis.
Goldman currently has a conviction buy rating and a $42.20 price target on Woolworths' shares.
