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Woolworths impresses with $2.3 billion profit

Australia’s largest retailer, Woolworths (ASX: WOW), has released an impressive set of full year profit numbers that include a record level of produce sales. After adjusting for one-offs and a 53-week trading year, the company reported the following results:

 

  • Sales increased 4.8% to $58.5 billion
  • Earnings before interest and tax (EBIT) increased 7.2% to $3.653 billion
  • Net profit after tax increased 6.1% to $2.354 billion
  • Earnings per share increased 4.8% to $1.90
  • Dividends per share increased 5.6% to $1.33
  • Return on funds employed increased 0.24% to 28%

The Australian Food and Liquor division, which encompasses supermarkets, was the standout performer, increasing EBIT by 6.7% to just over $3 billion on the back of a 4.7% rise in sales. The New Zealand Supermarkets division, while more subdued than the Australian division, still grew EBIT by a credible 3.1% to NZ$307 million (in local currency).

Meanwhile the Hotels division increased EBIT by 32.2% to $264 million boosted by the acquisition of 34 hotels during FY2013, making it the second largest contributor to earnings (in Australian dollars) behind the Australian Food and Liquor division. Also pleasing for shareholders was a 5.5% increase in Big W’s EBIT to $191 million with management stating that Big W has increased its market share over the financial year.

As per previous guidance, the market was already expecting a hefty loss from the Home Improvement division on the back of the Masters chain store roll-out. The EBIT loss from this division increased from $97 million in 2012 to $139 million in 2013.

With Woolworths and Wesfarmers’ (ASX: WES) Coles division both having now reported, it is interesting to compare these two competitors. Coles’ return on capital still significantly trails Woolworths, however with EBIT growth of 13.1% at Coles from revenue growth of 4.9%, its margins are improving and that gap is closing.

Foolish takeaway

Margin expansion and improved return on funds employed show why Woolworths is such a high quality company and with company guidance for FY2014 profit growth between 4% and 7% it is understandable that Woolworths is a cornerstone investment of many investment portfolios.

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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