Woolworths Share Price Falls Despite Special Dividend

Woolworths Group Ltd [ASX:WOW] share price fell shortly after opening this morning, after revealing their final profit and dividend for the 2018 financial year.

Shares of the supermarket are currently trading at $28.80, down 2.7% from Friday’s closing price.

Woolies are referring to it as the ‘year of business improvement’, stating that transformation is on track, with the group’s net profit after tax up 12.5% from last year, reaching $1.724 million. But most importantly for shareholders, the supermarket has announced a dividend payout of 103 cents per share, including a special dividend of 10 cents, up 22.6% from last year.

Why Woolies increased its dividend

The increase in dividend has stemmed from strong momentum across all businesses over the past 12 months. With group sales up 3.4% and earnings before interest and tax (EBIT) up 9.5%, the group is very happy with its progress.

Brad Banducci, Woolworths Group CEO said that considering the improved trading performance and balance sheet strength throughout the year and the recent introduction of Petrol alliance with Caltex, the Board decided to offer shareholders the special dividend.

This special dividend and the removal of the 1.5% Dividend Reinvestment Plan discount announced in February, reflect our commitment to disciplined capital management, including distribution of franking credits to shareholders as appropriate. Further capital management will be considered as part of a successful exit of our Petrol business.

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But why did the share price drop?

While the company had strong overall performance, its discount department store Big W ran at a loss of EBIT of $110 million.

In addition, the first-quarter of 2018/2019 food sales were slowed to 1.3% — the slowest rate in nearly two years. Woolies stated that the impact is due to the phasing out of single-use plastic bags, Coles’ popular Little Shop promotion, the deflation of fresh food price and the cycling of their Earn and Learn program in the previous year.

Despite the rough start to the year, management are confident that sales momentum will pick up over the course of the half.

Mr Banducci said:

Our customer satisfaction metrics (VOC) are broadly back to the levels prior to the removal of single-use plastic bags, including Time in Queue. Our overall brand metrics have also continued to improve relative to our competitors, including price perception, brand preference and quality of fresh. These customer and brand scores along with our strong trading plans, give us confidence in the critical run into Christmas.

Matt Hibbard

For Money Morning

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