Woolworths Group Limited (WOW)
All research reports and stock updates for Woolworths Group Limited.
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Spag bol for dinner
A hearty third quarter sales result for Woolworths will be accompanied by the heartburn of falling food inflation. Consumers are belt-tightening as higher interest rates bite into household budgets.
This too shall pass
Woolworths has ceded ground to Coles, but sales growth will begin to accelerate and will once again lift the PE ratio towards 25x. We have upgraded our recommendation to Buy.
Rollercoaster
Woolworths CEO Brad Banducci described the year as ‘inconsistent’ given the plethora of disruptions. The trouble-baton has been passed to cost increases, but we see sales recovering to a 3-year trend pattern, with margins improving through the year.
Good inflation
Inflation is working positively for Woolworths as volumes remain steady. COVID costs are gradually receding, but supply chain issues are still a hindrance.
Saucery
Inflation, underlying cost growth and COVID-19 related costs all combined to create the strange illusion of rising sales but falling earnings in the first half year for Woolworths Group.
Out of rhythm
The sales environment is fine, but costs are rising quickly and will have a big impact on the first half year result. We expect much of this to dissipate in the second half although rising online sales is creating a longer term margin issue.
Beauty parade
Woolworths has long coveted a stake in the retail pharmacy industry but has never found the right entry point, until Wesfarmers put a big foot in the door at Australian Pharmaceutical Industries. WOW has gazumped WES’s already increased bid for API but this is unlikely to be the end point.
End of pantry panic
Freedom from lockdowns will coincide with a slow down in supermarket sales as pantry hoarding and panic buying are unnecessary. Woolworths' share price has benefitted from the pandemic distortion of normal consumer behaviour but is now exposed to a gradually normalising economy.