April 29, 2020 / 11:46 PM / a month ago

Australia's Woolworths gets virus stockpiling surge but costs mount

SYDNEY/BENGALURU (Reuters) - Australian grocer Woolworths Group Ltd (WOW.AX) reported a sales leap in the March quarter thanks to stockpiling related to the country’s coronavirus shutdown, but warned the stampede was slowing and costs were mounting.

FILE PHOTO: A shopper walks out of a Woolworths store in Sydney, Australia, May 12, 2016. REUTERS/David Gray

The company said supermarket sales rose 11.3% to A$11.2 billion ($7.3 billion) in the three months to end-March from a year earlier, as panicked shoppers stacked trolleys with rice, pasta, toilet paper and cleaning products ahead of a nationwide stay-home order.

However, Woolworths said the rush was already easing and the company faced mounting costs after hiring thousands of new staff to cope with the spike in demand. The coronavirus shutdown also closed pubs the company owns under a division it is planning to spin off, resulting in a likely pre-tax loss of up to A$35 million per month, it added.

The third-quarter trading update highlights the difficult balancing act of one of the few companies to gain some benefit from the coronavirus crisis: Woolworths must pay thousands of new staff to keep shelves full, while investing in protective screens at check-outs and weathering the cost of closing non-supermarket businesses.

Smaller rival Coles Group Ltd (COL.AX) also reported a sales surge a day earlier, but analysts see Coles as better placed to benefit from the shift to living and working at home because it gets a larger portion of its sales from supermarkets. In comparison, Woolworths also relies on sales from its pubs and chain of discount department stores.

Shares of Woolworths fell as much as 2% early on Thursday before recovering to be flat by midsession, while Coles and the broader market were up nearly 2%. Shares of both grocers are close to steady since global markets began convulsing in response to the virus in late February, while the broader Australian market is down almost a quarter.

“The extent (Woolworths) can offset these costs depends on sales growth and the duration of such safety measures being required,” said JP Morgan analysts in a client note. “These costs are significant.”

LOCKDOWN PANCAKES

Australia has avoided the high casualty numbers of other countries as border closures and restrictions on personal movement slow the spread of the coronavirus to a crawl, with about 6,700 infections and 91 deaths nationally.

That has prompted some state governments to ease restrictions, and Banducci said sales percentage growth had swung back to “mid-single digits” in April, making it hard to forecast a full-year result.

Still, with Australia widely expected to experience recession and jobless numbers forecast to double to more than 10%, Banducci said he expected people to continue shopping less but buy more when they did, focusing more on cooking ingredients and less on pre-made goods.

“We’ve had our autumn cleaning season, people ... cleaning their houses. And of course we’ve seen a real bump up in hygiene products,” Banducci said on a media call.

The grocer had also noted a rush on baking goods like flour and yeast, “and in the last week, we saw... a move to slow cooking, herbs and spices - and soups.”

One surprise grocery pattern was a rise in purchases of breakfast ingredients.

“Pancakes are a big one,” Banducci said.

Reporting by Rashmi Ashok and Anushka Trivedi in Bengaluru; Editing by Shounak Dasgupta and Jane Wardell

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