Woolworths Group Ltd (ASX: WOW) faced significant challenges during the first half of fiscal 2025, with various factors impacting its financial performance and market position. The supermarket giant reported mixed results, leading to noticeable changes, including a cut to its dividend payment as industrial actions weighed heavily on its profits.
For the half-year period ending on January 5, 2025, Woolworths announced its financial results, which revealed group sales of $35.93 billion—an increase of 3.7% compared to the previous half. This result was primarily attributed to solid sales growth, alongside the acquisition of Petstock, which contributed positively. Excluding acquisitions, sales growth was more modest at 2.5%, indicating some underlying challenges within the company's operational model.
Despite the rise in sales, the bottom line was far from rosy. Woolworths reported group earnings before interest and taxes (EBIT) down 14.2% to $1.45 billion. This decline was primarily driven by the Australian Food segment, where EBIT was hit by supply chain disruptions, particularly from industrial actions. CEO Amanda Bardwell pointed out, "Customer metrics have begun to improve following a challenging half which was impacted by industrial action and continuing cost-of-living pressures."
This decrease was starkly evident, particularly as Australian Food EBIT saw a 12.8% decline. If one-time impacts were excluded, this figure would reflect only a 5% year-on-year drop, showcasing the significant strain experienced this half. The drop also stemmed from heightened costs, including meat input prices, and consumer shifts toward lower-priced goods. Meanwhile, the New Zealand Food segment performed well, recording EBIT growth of 15.2%.
Reflecting these results, Woolworths cut its interim dividend to 39 cents per share, down 17% from 47 cents last year and below market estimates of 40 cents. This move has raised eyebrows among investors, especially as dividend payments are traditionally seen as indicators of company health and shareholder rewards.
Chairman Scott Perkins openly acknowledged the shortcomings during the period, highlighting warehouse strikes and delayed stock processes as significant factors contributing to the lackluster performance. He indicated this was not the level of results shareholders expect, and admitted the company needs to address these operational inefficiencies immediately.
Market analysts have been cautious about Woolworths’ outlook. Goldman Sachs had predicted a 4% rise in sales but warned of substantial EBIT declines due to disruptions. They estimate the one-off impact from distribution center disruptions could cost around A$100 million, which reflects market uncertainty surrounding Woolworths’ recovery.
The broader market was affected too, with the S&P/ASX 200 index dropping 0.65% to 8,251.9 points, reflecting investor sentiment toward Woolworths and the retail sector as a whole. Some market watchers are getting anxious about whether the ASX can rebound from the downturn as heightened costs and consumer price sensitivity continue to influence trading patterns.
Looking forward, Woolworths management remains committed to improving customer experience and simplifying its operations to achieve about A$400 million in cost savings. The company also aims to expand its supply chain assets, particularly within New South Wales, as part of its strategic direction. Bardwell reinforced this vision, stating, "Our priorities for 2025 are clear and we are already underway. We have the opportunity to improve the shopping experience for our customers, and we are taking steps to simplify our business."
The first seven weeks of the second half showed promising signs of recovery, with Australian Food sales rising by 3.3%. These improvements are attributed to stabilized trading conditions following the resolution of industrial actions, demonstrating what can happen when operational challenges are mitigated.
Woolworths has also seen solid eCommerce growth—an 18.3% increase during the half—suggesting the company's pivot toward online services is proving successful. Initiatives like Same Day deliveries and Direct to Boot offerings are appealing to consumers who seek convenience amid busy lifestyles.
Overall, as Woolworths navigates this turbulent time, its strategic priorities and customer-centric focus will be put to the test. The company's ability to adapt to internal and external pressures will be key in determining its success moving forward. With cost-of-living pressures persisting, shoppers may continue to weigh their options, impacting sales and profit margins across the grocery sector.