Woolworths posts tepid full-year profit, weak start to 2023

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People walk past a Woolworths supermarket after the easing of restrictions put in place to curb the spread of the coronavirus disease (COVID-19) in Sydney, Australia, June 16, 2020. REUTERS/Loren Elliott/

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Aug 25 (Reuters) – Retailer Woolworths Group (WOW.AX) reported nearly flat full-year profit on Thursday, and said supply chain rumblings and absenteeism from teams had weighed on sales of its main Australian food business at the start of the new fiscal year.

Closures during the year and mandatory staff isolations sent spending skyrocketing at Woolworths and its smaller rival Coles Group (COL.AX), while bad weather and flooding blocked roads and wiped out crops , increasing wholesale costs.

The cost of doing business, excluding one-time expenses, rose 96 basis points (bps) to 25.1% for Australian Food during the reporting period.

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“We expect the business environment to remain volatile and challenging due to rampant COVID disruptions, continued supply chain challenges, higher costs across our businesses and cost pressures from life for our customers,” the company said.

Shares of Australia’s largest supermarket chain fell 4% to A$35.92, against a 0.5% gain in the broader market (.AXJO)

Total Australian Food segment sales for the first eight weeks of fiscal 2023 were down 0.5% year-on-year. Sales in its New Zealand Food segment were down 1% over the same period.

Woolworths, however, said COVID-related costs are expected to decline significantly in fiscal 2023 as customer behavior continues to normalize.

“As with Coles, commentary on the outlook has been muted, but the unwinding of COVID costs will be a tailwind for FY23,” analysts at Jefferies said.

Australia’s second-biggest grocer, Coles, posted better-than-expected annual profit on Wednesday as it curbed spending amid soaring inflation, but warned of lingering cost pressures. Read more

Retailers around the world have warned that rising fuel and ingredient costs will mean higher prices as they seek to protect their margins. Woolworths’ gross margin for the year increased by 35 basis points to 29.7%.

Rising prices and the cost of living crisis have prompted consumers to reduce discretionary spending on essentials such as groceries.

Some customers are ditching beef for more affordable protein sources and swapping fresh vegetables for more affordable frozen and canned goods, Woolworths said.

The company reported annual net profit after tax from continuing operations, excluding items, of A$1.51 billion ($1.04 billion), compared with A$1.50 billion a year ago.

($1 = 1.4478 Australian dollars)

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Reporting by Harish Sridharan and Savyata Mishra in Bengaluru; Editing by Vinay Dwivedi and Sherry Jacob-Phillips

Our standards: The Thomson Reuters Trust Principles.

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