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Woolworths share price: Understanding the FY20 results in 60 seconds

We examine some of the key highlights from Woolworths 2020 results release.

Supermarkets giant Woolworths (WOW) saw its share price run higher after releasing its full-year (FY20) results to the market.

Understanding Woolworths FY20 results in under 60 seconds

Looking at the highlights from these results, on a year-over-year basis, WOW reported:

  • Group sales of $63,675 million, up 8.1%
  • Online sales of $3,523 million, up 41.8%
  • Group earnings (EBIT) of $3,219 million down 0.4% against profits (NPAT) of $1,602 million, down 1.2%

Woolworths finished out the session up $1.110 or 2.83 % at $40.38 per share.

FY20 results unpacked

Investors look to have been impressed by Woolworths top-line performance, while seemingly looked through weaker profitability and dividends.

Looking at the performance of Australia Food – which remains the company's largest and most important operating segment – Woolworths recorded total sales of $42.2 billion, representing an impressive 8.3% increase, on a year-over-year and normalised basis.

On a more granular level, the company attributed the strength of its first half sales to its Lion King Ooshies and Woolworths Discovery Garden Campaigns; while its second half performance, which saw sales grow 10.4%, was driven by pantry stuffing activity and elevated levels of in-home consumption, management said.

It was however flagged that during May and June, customer shopping behaviours adjusted as movement restrictions eased across the country.

For the full-year, the company saw gross margins improve 47 basis points, to 29.2%. Management attributed this improvement to 'COVID-19 related product mix changes, improved stock loss and an ongoing focus on improving promotional effectiveness.'

Woolworths New Zealand Food arm experienced comparably strong top-line growth, with sales increasing 9.1% on a normalised basis to $6,589 million. Earnings (EBIT) rose in step, increasing 10.7% for the full-year.

Elsewhere, Big W and Endeavour Drinks both recorded robust sales growth; while Hotels witnessed steep declines, with sales down 19.5% and earnings (EBITDA) down 31.4%. Weakness in Hotels was primarily attributed to government mandated closures

Lastly, the WOW board today declared a final dividend of 48 cents per share, bringing the full-year (FY20) dividend payout to 94 cents per share.

While this represents a decline of 7.8% on the company’s FY19 dividends, the FY20 dividend is broadly in line with last year’s when 'Excluding non-comparable Petrol earnings in the prior year and the impact of the 53rd week,' the company noted.

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The analysts take

Analysts from Citibank responded with little enthusiasm to WOW’s FY20 release, maintaining their Neutral rating and price target of $41.50 per share. Even so, the investment bank said: ‘We expect ~3%-4% consensus earnings upgrades from the continued sales strength and reduction in COVID-19 fixed cost run-rate

‘The outlook has improved as incremental COVID-19 fixed costs have moderated and sales momentum has remained strong into early FY21e,’ Citi analysts also noted.

This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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