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What you need to know about Woolworths quarterly sales surge

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The Woolworths Group Ltd (ASX: WOW) share price will be in focus this morning after the supermarket giant posted a big rise in quarterly sales.

But it remains to be seen if this is enough to keep the party going for the retail giant, especially after the Coles Group Ltd (ASX: COL) share price tanked yesterday despite record sales in the March quarter.

Putting the “super” in supermarkets

Woolies reported an 11.3% jump in Australian food sales to $11.2 billion, while sales at its New Zealand supermarkets rallied 14.8% (in Australian dollar terms) to $1.9 billion for the 13 weeks since the start of 2020.

Online group sales are stealing the limelight though with a 34% surge in the quarter to $817 million, while its Big W department store recorded an impressive 9.5% uplift in sales to $866 million for the period.

The big improvement in Big W would normally excite investors as that division is a thorn in the side of the group.

Two steps forward, one step back

But management warned that the COVID-19 pandemic will have a material impact on its Big W stores. Woolworths announced yesterday that it was shutting its Calamvale store in Brisbane – its fourth store closure.

It’s pretty much the same story for its hotels business too, which reported a 2.4% increase in sales for the March quarter as the coronavirus crisis unfolded. Entertainment and hospitality venues are forced to shutter to help curb the outbreak in March.

But the government mandated shutdowns did help sales of alcohol with Woolworths’ Endeavour Drinks division delivering a 9.5% jump in sales – most of which came only in March.

Costs rising as well

While the group’s top line results have increased dramatically, management warned that costs have also risen materially due to the pandemic. Some of these costs will persist into the current quarter, such as the hiring of 22,000 extra staff for its supermarkets.

Nonetheless, I think Woolworths produced a decent set of numbers. Its supermarket sales growth didn’t quite keep pace with its rival Coles, which produced a 13.1% jump for the March quarter, but the continued turnaround of Big W is encouraging.

Foolish takeaway

While the June quarter is likely to paint a different story for the department store, I think the market will overlook this setback.   

Both Woolwowths and Coles shares have outperformed the S&P/ASX 200 Index (Index:^AXJO) amid the COVID-19 market mayhem.

The question is whether sales growth will keep growing above pre-coronavirus levels under the “new normal”.

The good news is that there are signs that the supermarket sales boost may be more than just a blip.

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Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of COLESGROUP DEF SET and Woolworths Limited. 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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