Release Date: February 25, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Woolworths Group Ltd (WOLWF) reported a 3.7% increase in group sales to $35.9 billion, with strong e-commerce growth of 20%.
• The company has a significant reach, with 83% of Australia's population living within a 10-minute drive of a Woolworths store.
• Woolworths' Everyday Rewards program continues to be a strong performer, with over 12 million active members across Australia and New Zealand.
• The company has made progress in reducing its environmental impact, achieving a 12.5% reduction in scope 1 and 2 emissions in H1.
• Woolworths Group Ltd (WOLWF) is focusing on simplifying its business operations, aiming for annualized growth savings of approximately $400 million by the end of 2025.

Negative Points

• Group EBIT declined by 14.2% to $1.45 billion, primarily due to challenges in the Australian food segment.
• The company faced significant supply chain disruptions due to industrial action, resulting in an estimated $240 million in lost sales.
• Woolworths Group Ltd (WOLWF) experienced a decline in customer advocacy and satisfaction due to inconsistent supply and service disruptions.
• The company is dealing with ongoing cost pressures, including a 4.25% wage increase and higher input costs, particularly in the meat category.
• Despite efforts to improve, Woolworths Group Ltd (WOLWF) is still facing challenges in recovering customer loyalty and sales momentum in certain regions, particularly Victoria.

Q & A Highlights

• Warning! GuruFocus has detected 6 Warning Signs with WOLWF.

Q: Sean Cousins from UBS asked about the $400 million cost-saving initiative, questioning if it is sufficient given Woolworths' larger headcount compared to competitors and whether these savings will be reinvested to offset inflation and promotional pressures. A: Amanda Bardwell, CEO, explained that the $400 million savings target is appropriate for running a sustainable business. She emphasized that simplification is an ongoing process to ensure efficiency and that decisions on reinvestment will be made based on market conditions.

Q: David Arrington from Bank of America expressed concern about Woolworths' declining EBIT despite sales growth and asked what measures will be taken to improve underlying performance. A: Amanda Bardwell acknowledged the disappointing results and outlined a focus on improving customer experience, price perception, availability, and fresh food offerings. She also highlighted the importance of simplifying operations and unlocking the full potential of the group's investments.

Q: Tom Keath from Barrenjoey inquired about the drivers behind the decline in food gross margins. A: Stephen Harrison, CFO, explained that the decline was primarily due to price investments and promotions, particularly in meat, as well as stock loss and supply chain costs. He noted positive contributions from adjacent businesses like Cartology and Everyday Rewards.

Q: Ben Gilbert from Jardon asked how Woolworths plans to leverage its scale and whether the $400 million savings will be reinvested into pricing to improve competitive positioning. A: Amanda Bardwell highlighted Woolworths' extensive store network and loyalty program as key assets. She stated that while the company is satisfied with its current pricing strategy, it will continue to monitor market conditions and consider adjustments if necessary.

Q: Lisa Deng from Goldman Sachs sought clarification on the expected mid-single-digit decline in second-half EBIT for Australian food and the factors contributing to margin erosion. A: Stephen Harrison confirmed that the guidance is on a like-for-like basis and includes supply chain costs. He noted ongoing customer value-seeking behavior and livestock cost inflation as key pressures, with efforts underway to optimize promotions and improve productivity.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.