Load-shedding cuts into Woolworths profit margins 

Woolworths achieved a solid financial year, but load-shedding cut into the retailer’s profit margins in its 2023 financial year. 

Woolworths released its results for the year ended 25 June 2023 today, which saw a significant earnings and profit increase following the disposal of its David Jones operations and solid results from its continuing operations.

Woolworths disposed of its David Jones operations on 27 March 2023, which led to a significant earnings boost for the company.

For the total group – including David Jones – Woolworths’ earnings per share (EPS) increased by 42.2%, headline earnings per share (HEPS) grew by 29%, and profit before tax is up 29.5%.

However, for continued operations, these numbers dropped to 15.5% growth in EPS, 14.8% increase in HEPS and 9.8% profit before tax growth.

Woolworths said it delivered strong results despite a challenging macroeconomic backdrop across both geographies – Australia and South Africa – and the continued severe impacts of load-shedding. 

In FY 2023, the retailer’s turnover and concession sales from continuing operations (i.e. excluding David Jones) increased by 10.8%. 

Online sales grew by 9.3%, contributing 8.3% to the company’s turnover and concession sales from continuing operations, compared to 8.4% for the prior period. 

Woolworths said its continued focus on cash generation resulted in a cash conversion ratio of 93% and free cash flow of 410.7 cents per share. 

The retailer’s gross total proceeds on the disposal of David Jones was R1.13 billion, on which it recognised a profit on disposal of R411 million, net of costs to sell and the carrying value of the disposed entity. 

Woolworths’ food business grew turnover and concession sales by 8.5% and 6.3% on a comparable store basis for the full year. 

Growth accelerated to 9.4% in H2, driven by increased footfall and improved availability, “notwithstanding the considerable disruption caused by higher levels of load-shedding”. 

“Price movement of 8.3% for the year was below underlying product inflation of 9.9% as we continued to further enhance our overall customer value proposition,” Woolworths said. 

The retailer’s gross profit margin increased by 40 basis points to 24.4%, “notwithstanding the impact of load-shedding on waste and supply chain costs, the growth in online sales, and the ongoing investment in price”. 

However, additional load-shedding-related diesel costs, coupled with higher cost inflation, resulted in expense growth of 12.4%. 

Adjusted operating profit grew by 2.9% to R2.98 billion, returning an operating profit margin of 6.9% for the current year, compared to 7.3% in the prior year. 

Excluding the impact of load-shedding, adjusted operating profit grew by 9.1%, returning an operating margin of 7.3%, above our medium-term margin guidance.

Woolworths declared a final dividend of 154.5 cents for the 52 weeks ended 25 June 2023 – a 3.7% increase on the prior year’s 149.0 cents.

This brings the total dividend for the year to 313.0 cents, representing a 36.4% increase on the prior year’s total
dividend of 229.5 cents.