FY22 first quarter
Woolworths said its group continuing operations sales went up by 7.8% year on year to $16 billion. E-commerce sales increased by 53.5% to $1.88 billion.
Let’s look at the individual key segments.
Australian food sales rose by 3.9% to $12.27 billion.
It started reporting a new segment, its Australian business to business (B2B) division. That includes the acquisition of PFD Food Services, the establishment of partnership services with Endeavour Group Ltd (ASX: EDV), and the growth of existing B2B businesses. This division saw growth of total sales by 196.4% to $952 million.
New Zealand food increased by 12.9% to $1.96 billion.
Big W sales fell 17.5% to $920 million.
Woolworths said the first quarter was the most challenging COVID quarter for the business because of disruption to its supply chain and stores, caused by the Delta variant. The Woolworths share price has fallen more than 4% since the release of this trading update.
Looking at the second quarter of FY22, in October to date, Woolworths said that Australian food sales have slowed as NSW lockdown restrictions eased. However, Big W sales have improved as Greater Sydney stores reopen. Management noted that Christmas will be even more important for Big W this year.
Interestingly, despite all the talk about inflation, average Woolworths supermarket prices decreased 0.9% over the quarter, or 1.8% excluding tobacco, with deflation across all major categories except tobacco and meat, due to comparing against the temporary reduction in promotional activity in the prior year and deflation in fruit and vegetables.
During the quarter, Woolworths opened a total of six new stores in Australia, with five supermarkets and one Metro store.
Woolworths is now firmly focused on Christmas and the festive season. Management said the outlook remains uncertain and that there are likely to be “challenges in the weeks ahead”.
What is the broker opinion on the Woolworths share price?
Brokers are mostly neutral on the business at the moment.
For example, the analysts at Macquarie Group Ltd (ASX: MQG) think Woolworths shares are ‘neutral’ with a price target of $41.50. While households continue to eat more food at home than before the pandemic, the supermarket business is starting to see this reverse. The broker also thinks that Coles Group Ltd (ASX: COL) is going to stage a comeback as COVID impacts subside.
One of the most negative opinions on Woolworths is from Credit Suisse, which has an ‘underperform’ on the business with a price target of just $31.84. This broker believes Woolworths’ profit margins could soon be tightened a little bit.
However, it’s not all negative. The broker Ord Minnett thinks the Woolworths share price is a buy, with a price target of $43. Ord Minnett believes the company still has attractive prospects.
Valuation on the Woolworths share price
Using the middle rating of Macquarie’s ‘neutral’ rating, the broker thinks Woolworths shares are valued at 30x FY22’s estimated earnings.