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According to Australian Retailer Woolworths, Inflation Is Driving Home Dining

Haiden Holmes

Feb 22, 2023 14:10


Woolworths Group Ltd, a leading Australian retailer, said that an inflation-driven move away from dining out aided in boosting sales, driving its shares higher after its half-year earnings above expectations despite cost challenges.

Since COVID-19 lockdowns in 2020 prompted supermarket hoarding, Woolworths and its smaller competitor Coles Group (OTC:CLEGF) Ltd have witnessed significant fluctuations in Australian customer behavior. As lockdowns were lifted in 2021, and again in 2022, sales slowed as rising energy and labor costs pushed up shelf prices.

Woolworths said on Wednesday that cost-of-living constraints, including skyrocketing electricity prices and nine interest rate rises since May, are now beginning to benefit stores as consumers choose for in-home consumption.

Since the beginning of 2023, food sales have increased 6.5%, roughly in step with inflation, compared to just 2.4% in the six months leading up to the end of December, the business reported.

"The shift from eating in restaurants to eating at home has become more evident," said Chief Executive Brad Banducci to reporters.

He stated that a growing number of clients from all demographic groups are now preparing meals at home since eating out is becoming more expensive.

The company's net profit before significant items increased 14% to A$907 million ($622 million), above the Visible Alpha consensus estimate of A$877 million. The majority of the increase was attributable to employee back pay linked to a prior salaries miscalculation.

Similar to Tuesday's announcement of Coles' interim results, Woolworths' profit increase was aided by a dramatic drop in COVID-19-related expenditures.

At midday, Woolworths shares were up 2%, compared to a 0.3% decline in the overall index, as analysts hailed the potential of profit margin expansion at a business vulnerable to rising supplier prices.

Phillip Kimber, a retail analyst at E&P Financial, wrote in a client note, "The momentum in the core Australian Food industry remains strong, with sales growth rates above expectations in early 2H23."

Woolworths declared an interim dividend of 46 Australian cents per share, up from 39 Australian cents per share the previous year.