Woolworths has reported a $175m surge in net profit to $1.14bn, with profit margins rising and the Ooshies toys promotion boosting sales.
The company’s market value surged $2bn and briefly exceeded $50bn, its highest value since 2021, as investors bought in after it reported annual results on Wednesday.
Sales and margins climb
Sales in the Australian supermarkets division rose 4.6% in the year to June, from $51.49bn to $53.85bn. The profit margin on earnings rose to 5.5%, from 5.3%. Its pre-tax earnings rose by $232m, to surpass $2.95bn.
Online sales rose 15.9% across the company, as it rolled out more in-store pick up and on demand options across the country.
It came after Coles on Tuesday reported a higher profit margin for its supermarkets, from 5.3% to 5.7% – its highest level since at least 2019. Net profit across the Coles group rose 1% to $1.09bn, in the year to June.
CEO responds to criticism
Woolworths and Coles have previously faced criticism for fattening profit margins during periods of high living costs at the expense of higher prices for its shoppers and low returns for its suppliers. Inflation rose 3.8% in the year to June.
Woolworths’ chief executive, Amanda Bardwell, said the company had not increased its profit margin by lifting shelf prices. She said it had instead come from more customers buying more at Woolworths.
Shoppers had become permanently focused on low prices as cost-of-living pressures became engrained, she said. “We’ve moved beyond a temporary phase into a new reality of entrenched value seeking,” Bardwell told reporters.
According to its annual reports, its margins were boosted by cuts to administrative costs and declining “stock loss”, including theft, as it installs gates at supermarket exits. Bardwell said the company had found facial recognition technology could work alongside the company’s systems, with a “technical test” in New Zealand under way.
Ooshies drives growth
Jamie Hannah, from investment management firm VanEck Australia, said Woolworths would probably aim to lift profits on sales in the longer term, rather than just cutting costs. “They’re just under increasing scrutiny, so they can’t really go increasing margins on huge scale,” said Hannah, VanEck Australia’s deputy head of investments. “It’s always going to be incremental.”
Big W returned to profit in the year to June, with pre-tax earnings at $64m, up from a $33m loss the year before. But the department store chain has seen its sales decline in the last eight weeks, despite its inclusion in the popular Ooshies program. Woolworths attributed the drop to “ongoing cost-of-living pressures on households, particularly budget customers and weaker trade in the Everyday business”.
The Ooshies campaign, where shoppers were given a blind bag containing a plastic Disney character for every $30 they spent, won over supermarket customers. Supermarket sales had accelerated in the eight weeks since the start of July, growing 7.6% above the prior year. Ooshies alone accounted for up to 2% of growth, or a boost of over $120m, assuming monthly sales averaged roughly $4bn.
The latest promotion, running from mid-July to mid-August, had hurt sales at competitor Coles. Bardwell said the campaign had attracted shoppers who wouldn’t normally visit Woolworths but she said Ooshies would not be offered year-round. “We don’t think we need to be running them all the time,” Bardwell said.
