Woolworths earnings, dividends and guidance miss: Just how bad was the half-year result?

Woolworth (ASX: WOW) posted a sharp decline in first-half earnings and slashed its interim dividend by nearly 20%, as late-2024 industrial action dented earnings by $240 million.

The industrial action began last November when around 1,500 warehouse workers across four distribution centres walked off the job. This had a major impact on Woolworths, with its market share in Victoria dropping about 6.6% in December. Shoppers also faced empty shelves at Woolworths, BWS, and Dan Murphy’s stores across Victoria, the ACT, and parts of NSW.

First-half highlights

Evans & Partners analyst Philip Kimbers noted that while the result missed expectations, sales momentum in the key Australian Food business had improved as supply issues caused by the industrial dispute were largely resolved.

The key numbers from the result include:

• Sales up 3.7% to $35.9 billion vs. $36.0 billion consensus (0.2% miss)

• EBIT down 14% to $1.45 billion vs. $1.49 billion consensus (3% miss)

• NPAT down 20.5% to $739 million vs. $770 million consensus (4.0% miss)

• EPS down 21% to 60.2 cents vs. 62.8 cents consensus (4.1% miss)

• Interim dividend down 17% to 39 cents per share vs. 39.2 cents consensus (0.6% miss)

The core Australian Food division saw EBIT decline 13% to $1.39 billion, including:

• $20 million in incremental supply chain transformation costs

• $95 million impact from the December industrial strike

However, excluding the one-off impact of these two items, Woolworths says "Australian Food EBIT would have declined by approximately 5% due to price and promotional investment and ongoing inflation in wages and other costs."

This suggests that even without the one-off impacts, the business struggled against a range of headwinds, including:

• Higher store wages

• A growing mix of lower-margin eCommerce sales

• Increased price and promotional investment

• Rising input costs for meat

• Higher stock losses

• Elevated finance costs

Woolworths' guidance also disappointed, with sales in the first seven weeks of 2025 up 3.3% year-on-year, below E&P's forecast of 3.8%.

Volatile price action

The stock’s movement was unusual for a result that broadly missed expectations. However, Woolworths has significantly underperformed rival Coles

• 12-month performance: Coles +25% vs. Woolworths -6.5%

• Year-to-date: Coles +5% vs. Woolworths just above breakeven

This stark underperformance may attract opportunistic buyers. Additionally, the S&P 500 Staples sector was one of the best performers on Wall Street overnight, rallying 1.69% despite broader market declines of 0.47%.

Downgrades to come

Kimbers expects ~5% downgrades to FY25 consensus estimates following the weaker result and guidance.

"Woolworths' share price has risen 5% in recent weeks after a period of underperformance. However, a weaker-than-expected result and potential downgrades will likely see the stock give up its recent gains," he said.

This is likely to trigger a wave of target price cuts and potential rating downgrades from brokers. According to Market Index's broker consensus, there are currently three Buy ratings and eight Holds.