Higher costs – especially at its core supermarkets business – hit Woolworths in the half year to December as the company warned last month about the impact Covid, labour shortages and supply chain problems were having on its businesses.
But the surprise of the half year report was a large jump in the value of wage underpayment which has now spread from the retailer’s salaried staff to the bulk of its employees, its hour wage workers (who are the lowest paid).
The total cost is rising and has topped half a billion dollars with more to come later this year as another audit is completed.
In terms of reputation the wage underpayment situation is doing more damage to Woolies than its struggles with Covid and the supply chain uncertainties where it seems to be winning.
Those uncertainties took a toll in the December half and on Wednesday Woolies revealed extent of the damage that it has foreshadowed in a mid-December trading update, especially in its supermarkets business where stock problems and labour shortages were bite hard.
While the retailer reported an 8% in sales to $31.8 billion for the first six months, profit margins were crimped by the higher costs and earnings before interest and tax (The key retailing earnings measure) fell 11% to $1.38 billion due to $239 million in COVID-related costs in the supermarkets division.
As a result interim dividend was trimmed to 39 cents a share from 40 cents (excluding the now separated Endeavour Drinks group).
Earnings in supermarkets fell 7.6% due to COVID-19 costs and stock shortages on shelves shelf due to supply chain disruption.
On top of that there was a massive slump in profits at its Big W retail chain, which was heavily affected by store closures during the half. Its Wesfarmers-owned rivals, Kmart and target were also hit hard in the half by closures and added costs.
CEO Brad Banducci said in the statement that he was proud of the result given the December half was one of the company’s most challenging during the pandemic (as he has said several times in the past year or so).
“Omicron created new challenges in early January with a record number of team members isolating and material supply chain and stock flow issues. However, having learned from the Delta outbreak, we responded with agility and are gradually moving into a more consistent operating rhythm,” he said in Wednesday’s statement.
For the first seven weeks of the second half, supermarket sales grew by around 5% thanks to heightened shopping off the back of the Omicron wave.
However, Mr Banducci added to the warning from rival CEO, Steve Cain of Coles on Monday that customers can expect higher grocery prices in the weeks to come.
“We expect inflationary pressures to continue to intensify due to industry-wide cost increases. It is inevitable that some prices will increase; however, we will continue to work hard to ensure that we provide our customers with great value and affordable alternatives,” he said.
Those extra costs will play out against the continuing probe of the company’s payment systems that has been going on now for more than two years and finding more and more problematic payments.
As of Wednesday’s report, the total cost of staff underpayments at Woolworths has jumped well past half a billion dollars and is heading for $600 million and more.
Woolies said it was uncovering new pay discrepancies and warned more could yet be found.
The retailer announced the preliminary findings of the end-to-end payroll review it commenced last year which assessed if all staff, including part-time and casual workers, were being paid correctly.
So far, the supermarket chain has uncovered underpayments totalling $144 million, relating to the pay for hourly team members when working consecutive days in a rostered cycle, and other discrepancies relating to long-service leave.
Combined with the $427 million in underpayments discovered by Woolworths in its salaried team members, the total cost of the company’s wage scandal has stretched to $571 million.
Woolworths said the remainder of its payroll is still being checked and it hopes to complete this review by the end of 2022.
“We have said from the outset that we would do the right thing by our team, and we are being thorough in our end-to-end payroll review,” Mr Banducci said.
“We are disappointed to have identified further inadvertent underpayments and unreservedly apologise to our affected team members. We will continue to fix issues when we identify them and introduce the right controls to prevent them from happening again.”
Woolies shares rose 1.3% to $35.68 at the close.
