Woolworths Group Ltd (ASX: WOW) stock has fallen significantly over the past year, as we can see on the chart below. Between 21 June 2023 and 1 April 2024, the Woolworths share price has dropped over 17%.
Woolworths is best known for its supermarkets in Australia and New Zealand (called Countdown). I'm sure most readers already knew it was a supermarket business, so I'm going to talk about three elements of the ASX share that investors should know.
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Growing profit margins
When it comes to profit margins, ideally we'll see a quality growing business deliver increasing economies of scale benefits over time.
The supermarket business' Australian food division has indeed been achieving stronger profit margins. In the FY24 first-half result, Australian food sales increased 5.4% to $25.9 billion, earnings before interest, tax, depreciation and amortisation (EBITDA) rose by 9.2% to $2.5 billion and earnings before interest and tax (EBIT) grew by 9.9% to $1.57 billion.
However, Woolworths' profit margins have come under scrutiny in recent months, so its margins may not remain this strong if the ASX share decides to help customers.
Online growth and Everyday Rewards
WooliesX represents the online operations of Woolworths. In the HY24 result, WooliesX total sales increased by 27.5% as it provided more convenient options with 'direct to boot' and 'same day' propositions.
Improvement in fulfilment capabilities led to business to consumer same day fulfilment mix reaching 43% in the second quarter of FY24, with 85% of orders fulfilled within 24 hours of order placement.
Over time, I think more Aussies are going to do more of their food shopping (and other retail shopping) online. E-commerce sales represented 12.2% of total sales in HY24, compared to 10.8% in HY23. Online sales could have a growing impact on Woolworths stock as time goes on.
Its food and everyday digital platforms saw average weekly traffic of 19.5 million in the second quarter of FY24, 17.5 million in the FY24 first quarter, 16.3 million in the FY23 fourth quarter and 15.7 million in the FY23 third quarter.
One of the most important initiatives for retail businesses these days seems to be the loyalty program. Woolworths' loyalty program is called Everyday Rewards, which can be useful for building customer loyalty and providing benefits.
At the end of Woolworths' HY24, it had 9.4 million members, which was a rise of 4.4% over the six month period.
The tag rate of sales attributed to Everyday Rewards continues to grow – it was 71.3% in the FY24 second quarter, 70% in the FY24 first quarter, 69.2% in the FY23 fourth quarter and 68.8% in the FY23 third quarter.
Diversified earnings
The business makes a large majority of its sales from supermarkets in Australia, but it has a number of other segments that are providing contributions.
Obviously, there's the New Zealand supermarkets, but it also has a business-to-business food distribution segment, the large retailer BIG W and various retail platforms.
The ASX share also recently announced it was acquiring a majority stake in the business that owns PETstock.
Foolish takeaway
According to the estimates on Commsec, the Woolworths stock price is valued at 23x FY24's estimated earnings.
