Woolworths Group Share Price Up as Dividends Slashed (ASX:WOW)

The Woolworths Group Ltd [ASX:WOW] share price has risen today with the release of its full-year results.

The supermarket giant announced it would cut dividends after higher COVID-19 related expenses and large one-off costs.

WOW’s profits fell compared to last year, despite a boom in sales.

A result that may surprise some as its competitor Coles Group Ltd [ASX:COL] posted its first profit growth in year earlier this month.

At time of writing the WOW share price is $1.07 or 2.73% higher to trade at $40.34 per share.

ASX WOW Share Price - Woolworths Share Price

Source: Tradingview

One-off expenses not entirely to blame

WOW recorded a 21.8% drop in bottom line net profit to $1.16 billion for the last financial year.

That is despite a 6.2% increase in total revenues to $63.67 billion.

Sales across the Woolworths group grew by 8.1%.

With online sales receiving a strong boost of 41.8% to $3.5 billion.

Online sales now account for 5.5% of total sales.

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Though online operations are profitable their margin is dilutive.

Strong sales growth in supermarkets, New Zealand, Big W, and packaged liquor helped prop up profit.

Sales at ALH fell during the June-half after it was forced to close more than 330 hotels for several months.

Which offset some gains.

Group CEO Brad Banducci said:

After strong first half group EBIT growth of 11.4%, EBIT growth in H2 was distorted by COVID. The closure of Hotels for much of the last four months of the financial year led to a material decline in its H2 EBIT compared to the prior year. However, the impact of the closures was partially offset by strong sales-driven EBIT growth across our retail businesses, despite materially higher customer and team safety costs.

WOW also clocked up $591 million in one-off expenses.

These included $185 million to repay staff underpaid over the last 10 years.

Supply chain transformation costs of $176 million.

As well as $230 million in restructuring costs at its liquor and hotel business.

However, excluding these costs underlying profit still fell by 1.2% to $1.602 billion.

Coming in just shy of consensus earnings of $1.66 billion.

Is the dividend cut justified?

To some a slight dip in profit growth will not be enough to justify a 7.8% cut in WOW’s total dividend.

WOW said it would cut its final dividend by 9 cents to 48 cents per share.

Bringing the total payout to 98 cents per share.

Although this doesn’t seem to have upset the share price.

Chairman Gordon Cairns defended the decision to cut the final dividend.

Excluding petrol earnings in 2019 and the impact of a 53rd week, the dividend was in line with that in the prior year.

There are already hopes of a better FY2021.

WOW said the new financial year had started well, with total sales rising 12.4% and online sales up 84.6%.

Although the group have already incurred over $100 million in COVID-related costs.

Food sales across the country were up 11.9% in July and August.

New Zealand food sales rose 8.3%.

WOW owned BIG W also saw sales jump 21.1% despite the closure of 22 stores in Melbourne.

Meaning the future could be very bright for companies like WOW and COL, but not all of Australia’s blue chip stocks will survive the storm. In our free report, economist Vern Gowdie reveals the five blue chip stocks he believes you should sell today. Get your copy here.

Kind regards,

Lachlann Tierney

For The Rum Rebellion

Lachlann Tierney is a writer for The Rum Rebellion and has been investing for nearly a decade. With a Masters of Science from the London School of Economics, he brings a sound understanding of global markets to his writing. Lachlann is interested in emerging technologies, energy solutions and helping people invest their money wisely. 

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