A Look At Supermarket Giants - Woolworths and Coles

Introduction:

Supermarkets falls into the category of retail segment and their performance is directly proportionate to the consumer demand. Weak consumption lead to fall in retail and supermarket volumes and vice-versa. During festival season, the demand for consumption of liquor, restaurants, clothing etc. remains higher which drive higher volumes for the owners of supermarkets. We will be discussing two leading names in supermarket segment which have decent presence across Australia.

Woolworths Group Limited (ASX: WOW)

Woolworths Group Limited operates as a supermarket chain across New Zealand and Australia with 3,292 stores. Recently, the company informed that one of its directors, named Siobhan McKenna acquired 48 ordinary shares under shares allocated under the dividend reinvestment plan at a price consideration of $37.0463 per share. As per a recent market update by the company, the Annual General Meeting will be held in Sydney on Monday 16 December 2019.

FY19 Financial Highlights for year ended 30 June 2019: WOW declared its FY19 full year results, wherein the company reported sales at $39,568 million as compared to $37,589 million in previous financial year. The year was marked by 7.5% and 5.7% jump in EBITDA and EBIT, which stood $2,613 million and $1,857 million respectively. Gross margin during the year stood at 28.7% as compared to 29% during FY18. The company reported cost of doing business at 24% as compared to 24.3% in previous financial year.

Operating Highlights for FY19: During FY19, BWS opened 30 net new stores which brings the total store network to 1,346. During the year, the company witnessed VOC scores and strengthened Rewards program through tailored offers, resulting in record high customer scan rates. The company reported 605 on demand stores during the year which supported double digit online sales growth. The Dan Murphy business recorded VOC at 75% followed by introduction of 35 wine merchants which improved in-store experience. During FY19, the business has done refinement on pricing strategy which has offer the best prices to the customers. Other highlights include efforts to make a real difference for families through activities like free books for kids.

FY19 Financial Highlights (Source: Company’s Fillings)

FY20 Guidance: As per the management guidance, the company is likely to open 8 new stores in F20. The management is planning to relaunch ‘My Dan’s’ loyalty program with three times more offers along with availability of personalized services driving member numbers and scan rates. The company will further upgrade its on demand delivery Launch app to provide a better customer experience. The company is targeting to complete full review of the wine products while focusing on delivering a customized range offered by the stores to enhance customer experience. The company will prioritize on the apparel segment through investment across new fixtures and innovative ranges followed by putting the clients by demonstrating real value and real solutions and real care. WOW will continue with updated pricing and promotion approach which will lead to a sustainable business model.

Stock Update: The stock of WOW was trading at $37.050, down 1.802% (at AEST 1:04 PM) as on 30 October 2019. The market capitalisation of the stock stands at $47.59 billion. The stock has delivered decent returns of 6.64% and 18.98% during the last three months and six months, respectively. The stock has given dividend yield of 2.7% on an annualised basis.

Coles Group Limited (ASX: COL)

Coles Group Limited operates in retail industry in Australia. It supplies household goods, grocery, fresh food, fuel, liquor and financial services.

FY19 Financial Highlights for year ended 30 June 2019: COL declared its FY19 financial results wherein the company reported sales at $35 billion, up 3.1% on prior corresponding period basis. The company reported EBIT at $1,467 million as compared to $1,479 million depicting a decline of 0.9% on y-o-y basis. EBIT margin, during the year stood unchanged at 3.8% compared to the year-ago period.

Coles Group Limited has three operating segments namely supermarkets, liquor and express. The operating highlights of these segments are discussed below.

Supermarket: Majority of the sales revenue came from this segment while the sales revenue stood at $30,890 million, grew 3.2% on y-o-y basis. EBIT from this segment came in at $1,183 million as compared to $1,157 million resulting a growth of 2.2% from previous corresponding period.

Liquor: Sales Revenue from this segment came in at $3,063 million as compared to $3,006 million, came higher at 1.9% from FY18.

Express: During FY19, this segment witnessed sales revenue at $1,048 million as compared to $1,035 million during FY18 while EBIT from this segment stood at $50 million as compared to $161 million, registering a de-growth of 69.3% on y-o-y basis.

Capital Expenditure: During the FY19, the business made a capital investment of $146 million in store renewals, $191 million across growth initiatives, $297 million in efficiency initiatives at and $259 million in maintenance segment. Gross capital expenditure stood at $893 million. COL made property acquisitions of $146 million and property disinvestments of $269 million during FY19.

FY19 Financial Highlights (Source: Company’s Report)

Operating Highlights for the year ending 30 June 2019: The business added 120 stores in online including Click & Collect locations while the company added 22 new stores in supermarkets and 27 Liquor shops.

The business took several efficiency initiatives including supply chain upgradation, improvements in store IT including ACO investments. COL’s maintenance includes refrigeration and electricals followed by investments across store technology. The company reported store renewals of 51 supermarket and 52 liquor renewals followed by 259 Coles, Express renewals including food-to-go (FTG) rollout.

Stock Update: The stock of COL was trading at $14.84, slipping by 1.133% (at AEST 1:04 PM) as on 30 October 2019. The market capitalisation of the stock stands at $20.02 billion. The stock has delivered decent returns of 6.38% and 19.77% during the last three months and six months, respectively.

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