Woolworths bounces back after tepid first half

Woolworths Group grew total sales 4.2 per cent over the March quarter, with each segment of its business seeing improved trading over the 13 weeks to March 31, 2019.

Shares in the retail conglomerate grew almost 2 per cent on Thursday morning to $32.54 per share.

While Woolworths’ supermarket sales in Australia grew 4.1 per cent, customer scores were slightly impacted by fruit and vegetable prices, quality and availability – which were affected by drought and flood.

Customer metrics fell below the same period last year, with VOC NPS score dropping from 56 last year to 48.

“We are pleased with the improvement in sales momentum across the group… after a challenging first half,” Woolworths Group chief executive Brad Banducci said.

“While we had positive transaction and item growth, sales also benefited from lower deflation than recent periods and settled weather.”

Over the Easter period, comparable items per basket increased by 0.6 per cent, excluding reusable bags, while trading also improved over the Australia Day, Lunar New Year, and Valentine’s Day holidays.

Average prices remained relatively flat compared to the same period last year, though, excluding fruit, vegetables and tobacco, prices declined 1.7 per cent.

Over the course of the quarter, Woolworths Group opened four new supermarket locations in Australia, one of which was a Metro offering, while two stores were shuttered.

Online sales increased 34.7 per cent year on year in Q3 to $368 million, accounting for 3.7 per cent of total sales, with the strongest growth continuing to be seen in customers using click-and-collect options.

Same-day-delivery was expanded to 56 stores nationwide, and Woolworths Rewards members increased to 11.5 million members.

Comparable sales in the group’s liquor category, Endeavour Drinks, improved 5.9 per cent compared to the previous year, with in-store and online VOC metrics improving across both BWS and Dan Murphy’s over the quarter.

However, according to the business, category mix continues to be an issue – especially in Dan Murphy’s. While beer sales improved 2 per cent, and sales of spirits grew 4 per cent, wine sales fell marginally over the period.

“After slower sales growth in H19, Endeavour Drinks’ sales momentum improved in Q3,” Banducci said.

“We still expect Endeavour Drinks’ EBIT for FY19 to be below the prior year as we invest in improving our range, service and convenience for our customers.”

Woolworths’ discount department store offering Big W saw comparable sales improve 7.4 per cent, compared to a 1.2 per cent loss at the same point of 2018.

Additionally, store-controllable VOC metrics rose to a high of 80 per cent in March, as customers had a more positive perception of prices, and online sales improved 167 per cent due to strong click-and-collect. Online accounted for 4.1 per cent of total sales, compared to 1.8 per cent last year.

“The challenge for Big W remains converting strong sales growth into improved profit and we continue to expect a loss before interest and tax of $80 to $100 million in F19,” Banducci said.

While one Big W store was opened during the quarter, another was closed, and Woolworths outlined a plan to close up to 30 stores over the next three years in an effort to improve the chain’s profitability.

“We are progressing our key strategic priorities with our focus now moving to plans for FY20 to deliver for our customers, team members and shareholders,” Banducci said.

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