Woolworths share rebounds modestly post results disappointment
Woolworths financial performance has been impacted by an increasingly challenging macro-economic backdrop
Key Takeaways:
- Challenging macro-economic conditions: Woolworths financial performance has been impacted by an increasingly challenging macro-economic backdrop
- Decreased turnover and profit: Turnover and concession sales have seen a decrease of 23.6% compared to the prior period. Profit before tax and adjusted profit before tax have also declined by 33.5% and 31.8% respectively.
- Strong working capital management: Despite the challenging conditions, the company has maintained a healthy cash conversion ratio of 92.5%.
- Resilience of the Food business: Woolworths' Food business has shown solid growth, with turnover and concession sales increasing by 8.4%.
- Deteriorating retail conditions in Australia: The company's Country Road Group has experienced declining sales in Australia and New Zealand, with consumer sentiment at near-record lows.
The Woolworths Group's financial performance for the first half of the 2024 fiscal year reflects a mixture of challenges. Continuing operations saw a modest growth in turnover and concession sales by 5.4%, contrasting with a significant 23.6% decline in the total group turnover, largely due to the absence of contributions from the divested David Jones. Profitability experienced pressure across the board, with profits before tax dropping to R2.5 billion, influenced by the tough macro-economic environment, operational disruptions in South Africa, and the high comparison base from the previous period.
Earnings per share and dividends to shareholders dipped, signaling cautious financial management. Woolworths demonstrated resilience within its Food segment, showcasing growth despite challenges like loadshedding and supply chain issues. The Fashion, Beauty, and Home sector encountered hurdles but focused on maintaining profit margins through full-price sales. Woolworths Financial Services improved its profitability, whereas the Country Road Group faced reduced sales and profitability amid tough trading conditions in Australia and New Zealand.
Broker ratings and long-term price target
A consensus of 8 analyst estimates sourced from Refinitiv data (as of the 29th of February 2024) suggests a long-term hold for Woolworths. A mean of these analyst’s price targets suggests a long term (12 month) fair value of 7271c for the stock.
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