Woolworths share price corrects after results, although longer term trend still up

Key Takeaways:

1. Woolworths Group Limited (WHL) has managed to deliver strong results, although earnings growth has slowed in the second half of the year
2. WHL has seen a notable shift towards online sales, which contributed an additional 8.3% to overall turnover and concession sales.
3. Earnings per share (EPS) saw a substantial surge of 42.2% to 551.0 cents per share, primarily driven by the profit gained from the sale of David Jones.
4. WHL made noteworthy progress in improving the underlying health of its Fashion, Beauty and Home business, as well as its Food business.
5. Woolworths Financial Services (WFS) also saw an increase of 14.5% year-on-year.

Woolworths FY 2023 results

Woolworths Group Limited (WHL) has demonstrated resilience in a difficult macroeconomic environment, particularly in South Africa where the company faced the harsh impacts of load shedding. Despite these challenges, the company has managed to deliver a strong set of results, although it is worth mentioning that earnings slowed considerably in the second half of the year.

The company has seen a significant increase in turnover and concession sales, with a year-on-year growth of 10.8% and comparable store sales growing by 9.3%. This growth can largely be attributed to a 9.2% increase in sales in the second half of the year. The company has also seen a notable shift towards online sales, which contributed an additional 8.3% to the overall turnover and concession sales.

The earnings per share (EPS) saw a substantial surge of 42.2% to 551.0 cents per share, primarily driven by the profit gained from the sale of David Jones. Other key financial metrics such as Headline EPS (HEPS) and adjusted diluted HEPS also saw sizeable increases of 29.0% and 35.6% respectively.

Despite the financial headwinds, Woolworths Group Limited (WHL) reduced its net borrowings to R2.5 billion and bought back shares worth R2.9 billion during the year. This move, which amounted to a 6.6% buyback of issued shares over the past two years, positively impacted the company's EPS, HEPS, DPS, and other capital return metrics.

In the midst of South Africa's energy crisis, WHL made noteworthy progress in improving the underlying health of their Fashion, Beauty and Home business. This sector saw turnover and concession sales grow by 8.9% and 8.3% respectively. Additionally, the Food business registered a growth in turnover and concession sales of 8.5% and 6.3% respectively, driven by increased customer visits and improved product availability.

Woolworths Financial Services (WFS) also saw a robust year-on-year increase of 14.5% by the end of June 2023, fueled by growth in new accounts and credit card advances. With the sale of David Jones, WHL now boasts a healthier balance sheet and a streamlined Group structure.

Despite the challenging macroeconomic climate and energy crisis in South Africa, Woolworths Group Limited (WHL) has managed to deliver robust results. The company's strategic shift towards digital avenues and focus on improving its various business sectors has paid off, resulting in a healthier balance sheet and a more efficient Group structure.

Woolworths – trading view

The long-term trend for Woolworths remains up as we see the price still trading firmly above the 200-day simple moving average (blue line).

In the short term we have seen a negative reaction to the results release. The initial selloff does however seem to have found intraday support at the 7250 level.

Traders looking for long entry in line with the longer-term uptrend might hope to see a close on today’s (30 August 2023) closer to the high of the session than to the low of the session, before targeting a retest of the 7830 level and possibly 8040. In this scenario a close below the 7250 level might be used as a stop loss consideration.