February was positive for the Woolworths (ASX:WOW) share price. Here’s why

Woolworths shares rose in February 2022.

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Key points

  • The Woolworths share price rose in February despite the volatility on the market
  • Woolworths’ half-year result showed growth of sales but a decline in profitability
  • Trading in the early part of the second half of FY22 showed further sales growth

The Woolworths Group Ltd (ASX: WOW) share price went up around 3% over February 2022 as the business told investors about its FY22 first half as well as giving a trading update.

Reporting season is the time that investors get an insight into how a business has performed over the last six or 12 months.

So, whilst the Woolworths share price is still down by 8% this year, it recovered some ground last month.

Let’s have a look at how good the HY22 result was.

Woolworths half-year result

Woolworths reported that in the first six months of FY22, it saw sales rise by 8% to $31.9 billion.

However, profitability reduced for group continuing operations before significant items. Underlying earnings before interest and tax (EBIT) fell 11% to $1.38 billion, underlying net profit after tax (NPAT) fell 6.5% to $795 million and earnings per share (EPS) dropped 5.1% to 64.3 cents.

Woolworths said that the far-reaching impacts of COVID resulted in one of the most challenging halves that it has experienced. The Omicron variant caused various impacts, particularly in early January, such as staff having to isolate and material supply chain and stock flow issues.

For the half-year, the company’s profitability was hurt by the challenging operating environment with higher direct and indirect COVID-related costs and BIG W store closures. Profitability, and expectations of profit changes, can have an impact on the Woolworths share price.

However, e-commerce sales continued to boom in the first half, with growth of 48% year on year to $3.49 billion.

The Woolworths dividend was cut by 26.4% to $0.39 per share. Though, management said that if excluding the divested business Endeavour Group Ltd (ASX: EDV), the dividend was only supposedly cut by 2.5%.

What about the trading update?

Woolworths revealed that the impact of Omicron in Australia led to “strong” sales growth in the first seven weeks of the year in the Australian food division with sales growth of around 5%, though it hurt BIG W sales with a decline of 4%. New Zealand food sales were also up around 5%.

It’s expecting inflationary pressures to continue to intensify as industry-wide cost increases continue.

In the medium-term, in Australia, the ASX share is looking to open a net 10 to 25 new full range supermarkets per year and another 5 to 15 new Metro Food stores per year. In New Zealand, it wants to open three to four new Countdown supermarkets annually.

Is the Woolworths share price a buy?

After seeing the result, Morgans rated the business as a hold with a price target of $37.15, thinking that Woolworths shares were fairly valued and didn’t have much room for growth.

However, Citi thinks that Woolworths is a buy, with a price target of $40.30 after seeing supermarket sales are going in the right direction.

Citi’s numbers put Woolworths shares at 28x FY22’s estimated earnings.

Motley Fool contributor Tristan Harrison 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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