Woolworths share price: Understanding the FY20 results in 60 seconds

Supermarkets giant Woolworths (WOW) saw its share price run higher after releasing its full-year (FY20) results to the market.

Understanding Woolworths FY20 results in under 60 seconds

Looking at the highlights from these results, on a year-over-year basis, WOW reported:

• Group sales of $63,675 million, up 8.1%
• Online sales of $3,523 million, up 41.8%
• Group earnings (EBIT) of $3,219 million down 0.4% against profits (NPAT) of $1,602 million, down 1.2%

Woolworths finished out the session up $1.110 or 2.83 % at $40.38 per share.

FY20 results unpacked

Investors look to have been impressed by Woolworths top-line performance, while seemingly looked through weaker profitability and dividends.

Looking at the performance of Australia Food – which remains the company's largest and most important operating segment – Woolworths recorded total sales of $42.2 billion, representing an impressive 8.3% increase, on a year-over-year and normalised basis.

On a more granular level, the company attributed the strength of its first half sales to its Lion King Ooshies and Woolworths Discovery Garden Campaigns; while its second half performance, which saw sales grow 10.4%, was driven by pantry stuffing activity and elevated levels of in-home consumption, management said.

It was however flagged that during May and June, customer shopping behaviours adjusted as movement restrictions eased across the country.

For the full-year, the company saw gross margins improve 47 basis points, to 29.2%. Management attributed this improvement to 'COVID-19 related product mix changes, improved stock loss and an ongoing focus on improving promotional effectiveness.'

Woolworths New Zealand Food arm experienced comparably strong top-line growth, with sales increasing 9.1% on a normalised basis to $6,589 million. Earnings (EBIT) rose in step, increasing 10.7% for the full-year.

Elsewhere, Big W and Endeavour Drinks both recorded robust sales growth; while Hotels witnessed steep declines, with sales down 19.5% and earnings (EBITDA) down 31.4%. Weakness in Hotels was primarily attributed to government mandated closures

Lastly, the WOW board today declared a final dividend of 48 cents per share, bringing the full-year (FY20) dividend payout to 94 cents per share.

While this represents a decline of 7.8% on the company’s FY19 dividends, the FY20 dividend is broadly in line with last year’s when 'Excluding non-comparable Petrol earnings in the prior year and the impact of the 53rd week,' the company noted.

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The analysts take

Analysts from Citibank responded with little enthusiasm to WOW’s FY20 release, maintaining their Neutral rating and price target of $41.50 per share. Even so, the investment bank said: ‘We expect ~3%-4% consensus earnings upgrades from the continued sales strength and reduction in COVID-19 fixed cost run-rate

‘The outlook has improved as incremental COVID-19 fixed costs have moderated and sales momentum has remained strong into early FY21e,’ Citi analysts also noted.