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Woolworths shares on watch after posting $1,024 million half year profit

The Woolworths Group Ltd (ASX: WOW) share price could be on the move on Wednesday after the release of its highly anticipated half year results.

How did Woolworths perform in the first half?

During the first half of FY 2020, Woolworths reported a 6% increase in sales from continuing operations to $32.4 billion. This was driven by growth across the entire business, but particularly from its key Australian Food business.

Things were even better for its earnings before interest and tax (EBIT). Once again, all its businesses delivered growth in this metric. This underpinned a 33.5% increase in reported EBIT (from continuing operations and before significant items) to $1,893 million.

On the bottom line, Woolworth delivered a reported net profit after tax of $1,024 million, up 8.5% on the prior corresponding period. This was in line with Goldman Sachs’ estimate of $1,021 million.

Diluted earnings per share before significant items came in at 77.5 cents, up 13% on the same period last year.

Cash flow from operating activities before interest and tax was $2,951 million. This was an increase of 18.7% on the prior year and was achieved despite significant items relating to salaried store team member remediation and Endeavour Group transformation costs of $131 million.

The Woolworths board declared an interim fully franked dividend of 46 cents per share, up 2.2% on last year’s payout.

Segment performance.

The Australian Food business was the star of the show during the half. It grew segment EBIT by 8% due to strong sales growth and despite cost headwinds, including higher team member costs as a result of its new Enterprise Agreement. The Lion King collectables campaign was a key driver of growth in the first quarter.

The New Zealand Food business also had a strong half. It reported sales growth of 4.8% and EBIT growth of 6.4%. Its EBIT growth was driven by a solid increase in sales and continued progress in total stock loss.

Endeavour Drinks reported first half sales growth of 4.7% and EBIT growth of 6.7%. This was driven by penetration growth of Pinnacle Drinks’ brands, which offset subdued market conditions in the second quarter.

The Hotels business was on form and delivered a 6.2% increase in sales and EBIT growth of 8.3%. All categories improved sales, with Bars and Food the highlights.

Finally, the BIG W business reported its first half year profit for the first time since FY 2016. It reported a 2.8% increase in sales and positive EBIT of $50 million. This was driven by improving sales, an improved category mix, and good cost control.

Outlook.

Woolworths CEO, Brad Banducci, warned that the second half had started slower, but that he remained positive that things would improve.

He said: “While pleased with our trading performance in the half, we continue to navigate an uncertain consumer and natural environment and expect this to continue, with a slower start to trading in Q3. Despite this, we remain confident in our plans for the second half.”

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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