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Woolworths share price tumbles lower on weak half year result

In morning trade the Woolworths Group Ltd (ASX: WOW) share price has tumbled lower following the release of its half year results.

At the time of writing the conglomerate’s shares are down 4.5% to $28.90.

How did Woolworths perform in the first half?

For the six months ended December 31, from continuing operations Woolworths posted a 2.3% increase in sales to $30,587 million, a 1% lift in earnings before interest and tax (EBIT) to $1,445 million, and a 2.1% increase in net profit after tax to $920 million. Earnings per share came in 0.9% higher at 70.3 cents and the Woolworths board declared a 45 cents per share interim dividend, up 4.7% on last year’s payout.

During the half the company’s key Australian Food segment grew sales by 2.3% to $19,892 million and EBIT rose 4%. The Food business returned to form in the second quarter following a tough first quarter due to the removal of single-use plastic bags and competitor activity. However, management warned that the market remains challenging with “subdued consumer demand and input cost pressures.” Comparable store sales are up modestly so far in the second half.

Woolworths’ Endeavour Drinks business grew sales by 1.8% to $4,596 million. Segment EBIT fell 6.4% due to a weaker than expected performance by the Dan Murphy’s brand. This was caused by cooler and wetter weather around key events.

The New Zealand Food business reported a 2.7% increase in sales to $3,143 million or 1.9% in constant currency. Although it had a solid half, the segment’s growth slowed in the second quarter. EBIT fell slightly on the prior corresponding period.

The BIG W business grew sales by 2.7% to $2,091 million thanks to a positive second quarter driven by strong Toys and Leisure sales. The business is still making a loss, but it has narrowed.

Finally, the company’s Hotels business achieved a 0.5% increase in sales to $865 million thanks largely to growth in Accommodation sales. Segment EBIT fell slightly on the prior corresponding period.

Outlook.

No real guidance was given by management for the second half and full year, but it warned that trading conditions remain challenging for its Australian Food business and that EBIT would be lower year on year for the Endeavour Drinks business.

An update on the third quarter will be provided at the start of May.

Should you invest?

I thought this was a soft result from Woolworths and saw little in it to make me want to invest in its shares ahead of either Coles Group Ltd (ASX: COL) or Wesfarmers Ltd (ASX: WES). Especially given the premium its shares have been trading at in comparison to its rivals.

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