Hotel closures trigger Woolworths profit slide despite soaring supermarket sales

Australia’s largest retailer Woolworths says COVID-19 has “distorted” its earnings as lockdown measures put its hotel business out of action.

Woolworths has booked a full-year profit plunge with rising supermarket sales during the coronavirus pandemic failing to counter financial pain from hotel closures.

The group’s chief executive Brad Banducci said COVID-19 had “distorted” earnings growth in the second half of 2019-20 as lockdown restrictions forced its hotel and gaming operations to halt, while supermarket sales surged.

Australia’s largest retailer posted a net profit of $1.16 billion, a 21.8 per cent plunge on last financial year.

Earnings dipped 0.4 per cent to $3.2 billion, while total sales rose 8.1 per cent to $63.7 billion.

“The closure of hotels for much of the last four months of the financial year led to a material decline in second-half earnings (EBIT) compared to the prior year,” Mr Banducci said.

“However, the impact of the closures was partially offset by strong sales-driven EBIT growth across our retail businesses despite materially higher customer and team safety costs.”

Woolworths CEO Brad Banducci expects retail conditions to remain ‘volatile and challenging’. Picture: Adam Yip

The group’s online sales soared 41.8 per cent to $3.5 billion as consumers embraced digital retailing.

Woolworths said shoppers frequented the supermarket less during the lowdown but bought more.

Sales at Big W were particularly strong during the June quarter, with online sales skyrocketing 181 per cent.

Total earnings within Woolies’ drinks and liquor business rose 5.7 per cent for the year, with most of the growth occurring in the first half.

Hotel earnings plunged 51 per cent as there was little to no revenue during the shutdown.

“We support government measures to contain the virus and support the economy but expect conditions to remain volatile and challenging,” Mr Banducci said.

“However, the resurgence in COVID cases and increased restrictions, particularly in Victoria, has also led to higher costs to operate in a COVIDSafe way.”

S&P Global Ratings said pandemic-related costs - cleaning, security, supply chain and staff safety - would ease over the next 12 months, from around $400 million last financial year, but remain elevated into fiscal 2021.

The ratings agency said Woolworths had ridden the wave of home consumption as restrictions limited the spending behaviours of consumers, and while it would moderate from the shopping frenzy seen in the six months to June, grocery sales and takeaway liquor demand would remain elevated over the next 12 months.

“The COVID-19 pandemic has reinforced our view that non-discretionary food-based and everyday retailing is resilient,” S&P said.

“Woolworths’ earnings are skewed to this retailing offer.”

S&P said the group’s expansion into the food service distribution sector through its investment stake in PFD Food Services, which requires approval from the Australian Competition and Consumer Commission, would bolster the scale and reach of its core food business.