Release Date: August 28, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Group normalized sales increased by 3.7% year-over-year, with eCommerce sales driving around half of this growth, increasing by 18.5%.
- Australian Food segment saw normalized sales increase by 3.7% and EBIT increase by 6%, with significant contributions from WooliesX.
- Strong growth in digital engagement, with weekly visits to digital platforms up 19.7% year-over-year, reaching 27.2 million visits per week.
- Everyday Rewards program in Australia reached 9.8 million active members, with 770,000 new members joining in FY24.
- Significant progress in supply chain automation, with the Melbourne South Regional Distribution Center achieving a 30% reduction in cost per carton and improved throughput.
Negative Points
- New Zealand Food segment experienced a challenging year, with EBIT declining by 57% due to value-conscious customers and higher wage costs.
- BIG W segment saw a 3.9% decline in sales and a 90% drop in EBIT, reflecting a challenging trading environment and elevated markdown activity.
- Persistent cost-of-living pressures led to a decline in customer scores and a loss of sales momentum in Q3.
- Group EBIT margin decreased by 12 basis points to 4.7%, with half-two EBIT declining by 1.3% year-over-year.
- Significant items, including a NZD 1.6 billion impairment in New Zealand Food and a mark-to-market loss on the Endeavour Group investment, impacted overall financial performance.
Q & A Highlights
Q: Can you explain the weaker in-store execution in Australian Food and the impact of electronic shelf labels on promotional participation?
A: Bradford Banducci, CEO: Promotional participation has lifted, and we don't see a material difference between stores with electronic shelf labels (ESLs) and those without. However, we are focused on improving shelf availability and ensuring we build enough stock based on forecasts. We are also enhancing digital tools to help customers find value in-store.
Q: What is the status of Woolworths' ERP system upgrade to SAP S/4HANA, and how will it impact costs?
A: Stephen Harrison, CFO: We are transitioning to SAP S/4HANA, which we expect to complete by 2026. This upgrade is less complex for us as we have already upgraded our retail and store systems. We anticipate managing the costs within our existing CapEx and OpEx budgets.
Q: Why is CapEx increasing in FY25, and is the business becoming more capital-intensive?
A: Bradford Banducci, CEO: The increase is primarily due to supply chain upgrades and store renewals. We are at a peak investment period, particularly with our automated distribution centers. These investments are expected to deliver long-term benefits and efficiencies.
Q: What caused the significant decline in store EBIT in the second half of FY24?
A: Bradford Banducci, CEO: The decline was due to a challenging Q3, including availability issues and negative media. We are focused on improving shelf availability and leveraging our eCommerce operations, which are largely fulfilled through stores.
Q: Can you provide a breakdown of the factors contributing to the Food GP margin growth?
A: Stephen Harrison, CFO: The growth was driven by a decline in tobacco sales, strong growth in adjacencies like Cartology and Everyday Mobile, and improvements in sourcing and promotional optimization. We remain competitive on price and focused on delivering value to customers.
Q: How is Woolworths addressing the challenges in its New Zealand operations?
A: Bradford Banducci, CEO: We are leveraging our platforms across Australia and New Zealand, including rebranding Countdown to Woolworths and integrating Everyday Rewards. We are also focused on improving digital engagement and addressing wage cost pressures.
Q: What are the plans for BIG W, given its challenging performance in FY24?
A: Daniel Hake, Managing Director of BIG W: We are focused on value and transformation priorities, including product resets in clothing and home categories. We have seen positive signs in unit growth and eCommerce performance and are optimistic about future profitability.
Q: How is Woolworths planning to improve in-store execution and labor allocation?
A: Bradford Banducci, CEO: We are committed to providing the right hours to our stores based on item sales and have launched new routines to improve product movement from the back of the store to the shelf. We are also addressing unintended consequences from our eCommerce growth, particularly on Sundays.
Q: What is the rationale behind considering the removal of gross profit and CODB at the segment level?
A: Bradford Banducci, CEO: The efficacy of GP versus CODB is decreasing due to complexities like media costs. We aim to provide a more accurate measure of profitability through contribution margin, which aligns with our internal decision-making processes.
Q: How is Woolworths addressing the shift in customer behavior and competition from other retailers?
A: Amanda Bardwell, Managing Director of WooliesX: We are focused on growing digital engagement and loyalty programs, which lead to higher customer spend and frequency. We are also enhancing our convenience offers like online shopping and direct-to-boot services.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
