Woolworths (ASX:WOW) share price slides after Q1 earnings update

Investors are pulling out of Woolworths shares in early trading.

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The Woolworths Group Ltd (ASX: WOW) share price is falling in early trading as the retail conglomerate reported its Q1 FY22 earnings for the 14 weeks ended 3 October 2021.

Woolworths shares are now changing hands at $38.83 apiece, a 4.05% decrease from yesterday’s close.

Here we dissect the company’s first-quarter performance and see how it might be affecting the Woolworths share price.

Woolworths share price slides despite 50% spike in e-commerce sales

In its first quarter of FY22, Woolworths recognised several investment highlights, including:

  • Group sales from continuing operations of $16.07 billion , a 7.8% year on year gain
  • Group e-commerce sales of $1.879 billion, a gain of 53.5% from the year prior
  • BIG W sales decrease of 17.5% year on year to $920 million
  • Australian business-to-business (B2B) revenue growth of 196.4% compared to the same time last year, climbing from $321 million to $952 million
  • New Zealand food sales up 13% year on year to $1.96 billion

What happened in Q1 for Woolworths?

The retail giant’s operations saw a net benefit from consumer spending patterns in lockdown as more purchases came through its e-commerce sales channel this quarter compared to the same time last year.

For instance, e-commerce sales of $1.879 billion is a sizeable 54% year on year increase for Woolworths. This coincided with more customers making at-home purchases during prolonged lockdowns in NSW, Victoria and New Zealand.

Food sales in Australia grew around 4% year on year whereas New Zealand food sales grew 9.7%. That’s a significant step above the group’s 2-year growth average of 8.7% in this segment.

This enabled a “record sales penetration of 12.4%” in this segment. This has since levelled as lockdowns begin to wind back.

Offsetting this strength, however, was the lockdown impact on BIG W’s earnings. It saw a year on year sales decrease of almost 18%, or around $200 million.

A flurry of store closures and additional trading restrictions, even when out of lockdown, also had an impact on BIG W’s performance, according to the company.

As such, the Group’s COVID-19 related costs came in at $102 million, or around 0.6% of total sales. Those expenses included “additional hygiene, testing, team and supply chain costs”.

Another key takeout from Woolworths’ performance this quarter was the growth in its B2B operations which saw tremendous expansion of more than 196% this quarter.

In fact, B2B sales grew from $321 million to $952 million in the 12 months to October 2021, supported by B2B e-commerce growth of more than 53% in the same time.

Aside from its financial performance, the company also saw a reasonable uptick in the number of Everyday Rewards members on its books to 13.3 million.

That’s a 5.5% increase over the year. This carried over to see “scan rates [of member cards] increasing to 54.7% of all transactions”. At the same time, weekly Everyday Rewards app users doubled compared to Q1 FY21.

What did management say?

Speaking on the announcement, Woolworths CEO Brad Banducci said:

Q1 F22 has arguably been the most challenging COVID quarter for our business, with the Delta variant causing major disruptions to our supply chain and stores, especially in NSW and Victoria. I again want to thank our extended team for their incredible efforts under very trying circumstances, and our customers, for their understanding and support.

What’s next for Woolworths?

Looking into the future, Banducci added:

As we look ahead, we will continue to prioritise the health, safety and wellbeing of our team and customers. The vaccination roadmap announced last week is an example of this commitment. Our focus is now firmly on Christmas and the festive season more broadly. While the outlook remains uncertain, and there is likely to be challenges in the weeks ahead, we are excited about helping our customers celebrate a much needed festive season in an inspirational, safe and enjoyable way.

The Woolworths share price has climbed more than 15% in the past 12 months, after gaining around 13% since January 1 this year.

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The author Zach Bristow has no positions in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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