Woolworths share price on watch amid strong FY23 growth

Woolworths has delivered a strong result for FY 2023 but will its cost outlook disappoint?

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The Woolworths Group Ltd (ASX: WOW) share price will be on watch this morning following the release of the retail giant's FY 2023 results.

Let's see how the company performed.

Woolworths share price on watch following strong result

  • Sales up 5.7% to $64,294 million
  • Earnings before interest, tax, depreciation, and amortisation (EBITDA) before one-offs up 12.7% to $5,694 million
  • Net profit after tax before one-offs up 13.7% to $1,721 million
  • Final dividend increased 9.4% to 58 cents per share (FY 2023 dividend up 13% to $1.04 per share)

What happened in FY 2023?

For the 12 months ended 25 June, Woolworths reported a 5.7% increase in sales to $64,294 million.

This was driven by a 5% lift in Australian Food sales to $48,047 million, a 17.4% jump in Australian B2B sales to $4,324 million, an 8% increase in Big W sales to $4,785 million, and a 4.6% rise in New Zealand Food sales to NZ$7,912 million.

Total ecommerce sales were largely flat for the year, coming in at $6,592 million. This represents 11% of total sales, down from 11.4% a year earlier.

Unlike rival Coles Group Ltd (ASX: COL) yesterday, Woolworths delivered solid earnings growth for FY 2023.

Management advised that this was underpinned by a 51-basis points improvement in its gross margin to 26.8%. This was driven by Australian Food, where the absence of COVID costs across the supply chain as well as mix and growth in new businesses more than offset an increase in stock loss.

Woolworths' EBITDA before one-offs increased 12.7% to $5,694 million and net profit after tax before one-offs rose 13.7% to $1,721 million. This growth came from its Australian Food, B2B, and Big W operations, which offset weaker earnings in New Zealand.

Incidentally, Woolworths' profits exclude one-offs relating to a net revaluation cost that was booked on put option liabilities and the gain on the sale of Endeavour Group Ltd (ASX: EDV) in FY 2022.

In light of its profit growth, the Woolworths board increased its fully franked final dividend by 9.4% to 58 cents per share. This means its FY 2023 dividend is up 13% to $1.04 per share.

How does this compare?

According to a note out of Goldman Sachs, its analysts were expecting Woolworths to deliver a 5.25% increase in revenue to $64,046.37 million, a 10.5% lift in EBITDA to $5,579.9 million, and a 13.25% lift in net profit to $1,714.8 million.

As you can see above, the company's result was slightly ahead of expectations. This could bode well for the Woolworths share price today.

Management commentary

Woolworths' CEO, Brad Banducci, was pleased with the company's performance. He said:

Our F23 result was a culmination of the realisation of benefits from our ongoing investment in recent years as well as a recovery from a very challenging F21 and F22 which were impacted by material COVID costs. While continuing to refine our new store blueprint and progress our store renewal program, we have also seen strong sales growth from newer businesses and adjacencies such as PFD and Cartology, supplemented by our acquisition of Shopper Media in H1.

Investments in analytics, digital and eCommerce have built a strong platform for growth for the Group. wiq worked in partnership across the Group to deliver high priority analytics use cases including Next Gen Promotions, while Digital and eCom had a strong H2, with WooliesX eCom sales increasing by 13.2%, and digital visits to Group platforms increasing by 21.1% in Q4.

Outlook

More good news for the Woolworths share price could be that FY 2024 has started positively.

Banducci revealed that "sales in the first eight weeks of the year have shown similar trends to Q4 with solid growth in our Food businesses but BIG W sales declining on the prior year."

He notes that in "Australian Food, Woolworths Food Retail sales growth for F24 to date remained strong at approximately 6.5%."

However, one potential negative is that "costs in F24 will be impacted by material wage increases and inflation in energy and transport."

The company aims to tackle this. Banducci advised that it has "made good progress in F23 to restore our operating rhythm and have strong productivity plans in place for the year ahead."

Nevertheless, Banducci concludes:

We remain cautiously optimistic about the year ahead and are confident in the plans we have in place. However, EBIT growth in Australian Food in F24 needs to be viewed in the context of the above mentioned cost inflation and a strong focus on delivering value for our customers.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. The Motley Fool Australia has positions in and has recommended Coles Group. 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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