Woolworths shares fall 5% – Worst day since May 2022 on poor earnings and CEO departure

Woolworths (ASX: WOW) is on track to log its worst day since May 2022 after reporting first-half earnings that missed analyst expectations, declaring a lower-than-expected dividend, and announcing its current CEO's departure.

First-half FY24 – Key numbers

• Revenue up 4.4% to $34.6 billion, in-line with consensus ($34.75 billion)

• EBIT up 3.3% to $1.69 billion, in-line with consensus ($1.685 billion)

• Net profit after tax (before significant items) up 2.5% to $929 million or a 2% miss against consensus ($943.8 million)

• Statutory net loss of $781 million, due to New Zealand Food impairment of $1.5 billion and loss of significant influence over Endeavour Group of $209 million

• Interim dividend of 47 cents per share or 6% below consensus (50 cents)

Outlook

"Sales in the first seven weeks of 2H24 have continued to moderate reflecting lower inflation and a more cautious consumer," notes Woolworths.

"In Australian Food, Woolworths Food Retail sales increased by approximately 1.5% for the first seven weeks impacted by a further moderation in inflation and lower item growth ... EBIT growth in H2 is expected to be below H1."

Big W added further insult to injury, with sales in the first seven weeks down approximately -6% and the company guided to breakeven EBIT for the second half.

Key takeaways

• CEO transition: Chief Executive Brad Banducci will retire in September. Amanda Bardwell has been appointed CEO effective September 1. Bardwell has led two of Woolworths Group's most successful growth businesses in eCommerce and Loyalty. She was appointed the Managing Director of WooliesX in May 2017.

• Australian Food: Total sales in the first half rose 5.4% to $25.9 billion, boosted by strong eCommerce growth and items returning to modest growth. EBIT rose 9.9%, in-line with consensus expectations.

• New Zealand Food: Experienced a challenging first half, impacted by slowing sales due to moderating inflation and a competitive trading environment. Sales increased by 2.3% for the half but EBIT tumbled by 41.7% to NZ$71 million. Early progress is being made but "there remains much more to be done".

• Big W: Sales fell 4.1% for the half but the company's EBIT decline widened to 60% to $54 million amid ongoing customer adjustments to cost-of-living pressures. The company flagged the underperformance of discretionary categories such as Home. Customers were noted as increasingly cautious and traded down to lower price products.

• Costs: Group cost of doing business rose 81 bps to 22.5% driven by "material team wage increases and other cost inflation across all businesses."

• Outlook: The outlook commentary was soft amid moderating inflation and cautious customers. Growth in Australia Food was up just 1.5% in the first seven weeks of the second half, weakness in Big W continues to persist and New Zealand business has a lot of work cut out for it

Jarden's first take

"EBIT was pre-announced so little surprise in the headline. However, digging into the detail, it does look a little softer divisionally ... trading update also softer and likely to lead to some modest consensus downgrades," Jarden said in a note this morning. The analysts also flagged the CEO retirement as taking place 6-12 months ahead of their expectations.

Despite the bearish first impression, an OVERWEIGHT rating was retained with a $42.90 target price.

• Read the Announcement – Half-Year Results Announcement

• View the Presentation – Half-Year Results Presentation

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