Australia’s Woolworths beats profit targets, expects stronger second half

FILE PHOTO: FILE PHOTO: A man sits outside a Woolworths supermarket in Sydney
FILE PHOTO: A man sits outside a Woolworths supermarket following the easing of restrictions implemented to curb the spread of the coronavirus disease (COVID-19) in Sydney, Australia, June 16, 2020. REUTERS/Loren Elliott

February 22, 2022

(Reuters) -Woolworths Group on Wednesday beat first-half profit estimates and forecast improved financial performance in the second half, as Australia recovers from the pandemic, sending the company’s shares up 4%.

Woolworths and its smaller rival Coles Group collectively sell about two-thirds of the country’s groceries and have benefited significantly from people stocking up pantries for essentials during the various stages of lockdowns.

Shares of Woolworths, the biggest Australian supermarket operator, which gained 4.4% to A$36.75 in early trading, had surged 9.5% in 2021.

“Assuming a continued normalisation in the operating environment during Q3, we expect an improved group financial performance in H2,” Chief Executive Brad Banducci said.

Woolworths’ first-half net profit after tax from continuing operations was A$795 million ($573.9 million), lower than A$850 million a year earlier, but beat a consensus estimate of A$746 million, compiled by Visible Alpha.

The results, however did show Woolworths trailing Coles in managing costs. While Coles said costs had steadied in February, Woolworths only expects them to moderate later in the second half.

Surging COVID cases forced a high number of frontline, warehouse and delivery staff to isolate, driving up costs for Woolworths and limiting its ability to restock shelves..

The company reported A$239 million in COVID-related costs during the first half due to the impact of the pandemic on its stores’ distribution centres as well as supply chain disruptions.

Still, curbs in Australia due to the Omicron variant led to strong sales growth in the food segment, Woolworths’ biggest earnings contributor, with total sales for the unit up 5% in the first seven weeks of 2022.

“We expect inflationary pressures to continue to intensify due to industry-wide cost increases. It is inevitable that some prices will increase,” the company said.

($1 = 1.3852 Australian dollars)

(Reporting by Harish Sridharan and Indranil Sarkar in Bengaluru; Editing by Shinjini Ganguli)

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