Profit drop: Woolworths (ASX:WOW) share price pushes higher despite 'challenging' first-half results

How did Woolworths perform for the front end of FY22?

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Key points

  • Woolworths shares edge 4.06% higher regardless of weakened first-half result
  • The company's bottom line fell by 6.5% to $795 million, impacted by COVID-related disruptions
  • The Woolies board declared a fully-franked interim dividend of 39 cents per share

The Woolworths Group Ltd (ASX: WOW) share price is advancing on Wednesday morning. This comes after the retail conglomerate announced its first-half results for the 2022 financial year.

At market open, Woolworths shares were swapping hands for $36.63, up 4.06%.

Woolworths delivers results for H1 FY22

The Woolworths share price is heading north today despite a softened performance by the company. Here are Woolworths' key financials for the 27 weeks ending 2 January 2022:

How did Woolworths perform in H1 FY22?

The financial performance of the group was materially impacted by the COVID-19 pandemic.

While strong sales growth experienced an 8% lift from continuing operations, this was offset by $239 million of COVID costs. Compared to the second half of FY21, COVID costs increased due to the outbreak at Woolworths' stores and distribution centres.

In addition, group EBIT from continuing operations declined to $1,237 million for the period. This reflected a challenging operating environment in the Australian food segment, which led to increased COVID-related costs and Big W store closures.

The company's biggest business, Australian food, grew by 3.4% in sales but moderated over the half as lockdowns eased, before rebounding again in December.

Nonetheless, EBIT declined to $1,217 million, reflecting the higher operating costs caused by COVID and a delay in implementing productivity initiatives.

What did management say?

Woolworths Group CEO Brad Banducci touched on the results:

While the far-reaching impacts of COVID resulted in one of the most challenging halves we have experienced, we ended H1 strongly with positive trading momentum and helped our customers enjoy a much-needed Christmas celebration and festive holiday season.

Omicron created new challenges in early January with a record number of team members isolating and material supply chain and stock flow issues. However, having learned from the Delta outbreak, we responded with agility and are gradually moving into a more consistent operating rhythm.

What's the outlook for Woolworths?

For the current second half, the Omicron outbreak has led to strong sales growth for the first seven weeks in Australian food. However, this has negatively impacted Big W's sales.

In New Zealand, sales growth has benefitted from higher inflation, with Omicron not yet having a material impact on customer shopping behaviour.

Group COVID costs in the first seven weeks were approximately $34 million or 0.4% of sales. Indirect COVID costs have also remained high, mainly due to continued end-to-end supply chain disruption.

Furthermore, Woolworths expects inflationary pressures to continue to intensify due to industry-wide cost increases.

Assuming a continued normalisation in the operating environment during Q3, management is forecasting an improved financial performance in the second half.

In New Zealand, the company is preparing to lessen the impact of Omicron in minimising disruption to customers and staff.

For Big W, the group predicts a challenging half but anticipates the business to report a profit in the second half.

Motley Fool contributor Aaron Teboneras has no position 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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