Woolworths Share Price Down: More Sales than Coles, Owes a Decade of Back Pay

It will be an interesting day of trading today for Aussie grocery leader Woolworths Group Ltd [ASX:WOW].

The company released potentially conflicting updates on the ASX this morning, leading to a small loss for the Woolworth’s share price.

One was their Q1 FY2020 results, which were much anticipated after Coles’ quarterly update yesterday.

Unsurprisingly, Woolies surpassed Coles in every category of sales to reach just shy of $16 billion, almost doubling Coles’ $8.7 billion.

However, what did come as a shock to the market was a previous statement (by two minutes) made by Woolies, announcing their plan to fully remediate nearly 6,000 underpaid team members.

These underpayments were traced back as far as 2010, banking up the cost of remediation to between $200 million and $300 million.

The bad press seems to have deterred investors, with Woolies shares down 0.42% within the first half hour of trading.

Five income payers to buy today (free report).

Salaries don’t directly affect sales

Woolworths intend to do the first round of interim back payments for the last two years before Christmas this year. This will likely impact cash and cash equivalents for the upcoming quarter.

Woolworths’ CEO Brad Banducci said:

The highest priority for Woolworths Group right now is to address this issue, and to ensure that it doesn’t happen again.’

Whatever the outcome, it won’t affect the exciting sales figures revealed today, which has to do with product-customer transactions, not Woolworths workers.

Group sales up 7.1% to $15.9 billion for the quarter, far exceeding Coles’ 1.8% growth.

Online sales have also outperformed their competitor, up 37.4% compared to Coles’ 23.5% increase.

Woolworths attribute these strong figures to the success of their two collectibles campaigns this year.

Their Lion King Ooshies were ‘particularly popular’ in July and August, and the Woolworths Discovery Garden showed to be ‘positively impacting sales’.

It should be understood that this sales momentum shouldn’t be too much impacted by the salary fiasco.

Granted, from a PR perspective it’s not the greatest image for the company, and it may deter some customers.

But groceries will still have to be bought regardless, and convenience will always play a factor in customer preference.

With around 200 additional stores compared to Coles, and over 50 of them offering same-day delivery, drive up or drive through or pick up, Woolworths appear to have the edge here as well.

Is Woolworths a worthwhile investment?

As of last year, Woolworths is still Australia’s top grocery retailer, holding a 34% market share.

ASX WOW - Woolworths Market Share Price

Source: Roy Morgan

With Coles next in line at 27.6% market share, Woolworths holds a comfortable lead.

And this week’s results suggest, this leader board won’t be changing any time soon.

However, Woolworths’ dividend yield is currently the same as Coles’, at just 2.7%. Ultimately, traditional dividend plays aren’t pumping out the returns like they used to.

For five stocks we think could be dividend income super stars in 2020, check out this free report.


Imogen van der Meer,
For Money Morning

Imogen is a research analyst at Fat Tail Investment Research, she holds an RG146 certification in securities and is currently completing a Masters Degree at the University of Melbourne. She has a particular interest in fintechs and the exciting innovations coming out of ASX-listed small caps.

Money Morning Australia