Shares in supermarket giant Woolworths were whacked hard on Tuesday after the company revealed a shock first half earnings downgrade because of soaring costs caused by Covid.
In a surprise trading update issued 17 days before the end of the half year period, the country’s biggest retailer downgraded its projected interim profits after a $220 million cost blowout due to a swathe of COVID-related issues.
Earnings before interest and tax (EBIT) for the company’s two major continuing businesses – supermarkets (In Australia) and Big W could be down more by between $200 million and $300 million, or more than 20%.
The shares fell more than 10% to a day’s low of $36.26. They ended down 7.68% at $36.45.
Woolies shock saw shares in rival Coles sold off as well – they lost 2.7% to end at $17.38
But shares in Metcash, the third listed supermarkets operator edged up 0.66% to $4.53 as investors realised its interim results 8 days ago made no mention of higher Covid related costs impacting earnings.
The retailer told the market on Tuesday direct costs at its supermarkets division were expected to be $150 million for the six months to the end of December.
These expenses relate to costs incurred in the company’s stores and supply chains to protect staff and customers from the pandemic.
Earnings Before Interest and Tax (EBIT, the favoured profit measure in retailing) are now forecast to come in between $1.19 billion and $1.22 billion, down more than $200 million from on the $1.32 billion in EBIT for the December, 2020 half.
Big W’s EBIT will fall to between $20 million to $30 million compared with the $133 million for the December, 2020 half year.
But Woolies said that it will have to bear an additional $60 to $70 million of ‘indirect’ costs this half, which CEO Brad Banducci said was due to the disruption caused by the pandemic at the company’s distribution centres.
“The first half of F22 has been one of the most challenging halves we have experienced in recent memory due to the far-reaching impacts of the COVID Delta strain and its impact on our end-to-end stock flow and operating rhythm,” Mr Banducci said.
“We have continued to put the health, safety and wellbeing of our customers and team first in the context of this challenging and volatile operating environment.”
Woolworths first-half results, due to be formally released in February, will also include a $35 to $40 million Christmas bonus payment to the company’s workforce.
Sales in the supermarkets division are up 3% across the first half to date, driven entirely by the business’ online division, which is less profitable than its bricks and mortar operations, further weakening earnings.
CEO Banducci said the costs are expected to significantly reduce in the second half, though some supply chain constraints could persist into January if demand stays high.
