Is the Woolworths Group Ltd (ASX: WOW) share price a buy after reporting its half-year result this week?
The supermarket giant reported that sales from its continuing operations rose by 6% to $32.4 billion and group online sales increased by 31.6% to $1.65 billion.
Earnings before interest and tax (EBIT) from continuing operations (before significant items) rose by 11.4% to $1.9 billion and net profit after tax (NPAT) from continuing operations before significant items increased by 15.7% to $979 million.
Continuing net profit after significant items fell 1.7% to $887 million.
What were the significant items? Well, there were $51 million of costs associated with the Endeavour Group separation process and $80 million related to the salaried store team member review because of underpayments.
What was a solid result was spoiled by the underpayments. Australia's wage system is indeed complicated, but nonetheless that doesn't soften the blow for Woolworths' current shareholders.
A solid increase in sales and a rise in the EBIT margin was an excellent performance by the supermarket giant.
Woolworths has done a great job of winning back customers offering quality and service. You don't need to have the cheapest products to offer good value for customers.
Looking ahead, Woolworths is expecting further food inflation because of the drought, with the bushfires also causing some impact on fruit and vegetable. But the company expects further productivity improvements.
The separation process for Endeavour Group continues and Big W has improved its trading performance, and Big W expects to report a profit for the full year (post-AASB 16).
Foolish takeaway
Woolworths is doing well, its performance should be commended. However, it's now trading at 27x FY21's estimated earnings. Ignoring the valuation, it's a defensive business, but it doesn't appeal to me at this price – it would have to drop a lot.
