Woolies has warned that its earnings before interest and tax for the six months to December is expected to drop 5.6% below last years $1.6 billion result.
👉 Background: Woolworths is the biggest supermarket in Australia with roughly 37% market share — ahead of Coles with 28% market share. Woolies has been through a lot this year, including price gouging inquiries, and losing its ex-CEO after a media bungle.
👉 What happened: Now, Woolies has warned that its earnings before interest and tax for the six months to December is expected to drop 5.6% below last years $1.6 billion result...and 6% below market consensus.
👉 What else: With the cost of living squeeze on customers, Woolies has been forced to discount its goodies. But interestingly, the growth of its e-commerce business has also been a reason for its struggling EBIT.
💡When companies pursue new initiatives, they can unleash hidden costs that come back to bite.
💡Woolworths grew its e-commerce sales by over 23% last quarter - they now account for 14.5% of all of its sales. But, e-commerce sales are less profitable than those in physical supermarkets, as Woolies' logistics costs are higher.
💡Woolies isn’t quite at a point where its e-commerce penetration can justify reducing the size of its stores. It has maintained the same size and cost of stores...but added a new cost for e-commerce. And this added cost is putting pressure on Woolies' bottom line.
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