Woolworths Group Limited

Thank you for standing by and welcome to the Woolworth Group F23 Q1 sales announcement. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Brad Bantuni, Managing Director and CEO of Woolworth Group. Please go ahead.

Good morning, everyone. Before we start the call today, I would like to acknowledge the traditional custodians of the land on which we meet today, the Gadigal people of the Eora Nation, and I'd like to pay my respects to elders past, present, and future. Thank you for joining us today for Woolworths Group's first quarter sales results for the F23 financial year. Joining me this morning are our Chief Financial Officer, Stephen Harrison, Benjamin Ockavit, Managing Director of Big W. Amanda Bargall, Managing Director of Woody's X. Spencer Son, Managing Director of Woolworths New Zealand. Natalie Davis, Managing Director of Woolworths Supermarkets. And Guy Brent, Managing Director of the Woolworths Food Company, which as we recently announced comprises our own and exclusive brand food business together with PFD Food Services, Greenstock and Australian Grocery Wholesalers. Turning to our results. Our Q1 F23 results reflect the cycling of two consecutive years of COVID-related impacts across our group, as well as the transition to a more predictable trading pattern in the current quarter. Pleasingly, both store service levels and team absenteeism continued to improve over the quarter, which was reflected in improved customer scores in Q1. Group sales increased 1.8% to $16.4 billion in Q1, with sales from Australian and New Zealand B2C food businesses below the prior year as recycled COVID-related growth in F22. This was offset by a solid sales performance from both Australian B2B, driven by PFD, and Big W. As customer mobility increased during the quarter, e-commerce sales for both Australian food and Big W were below the prior year, resulting in a decline of 14.5% in group e-commerce sales in Q1. Digital engagement remained strong in the quarter, with weekly average traffic to our digital platforms at 20.2 million weekly visits. Turning to Australian food, total sales in the quarter decreased 0.5% to $12.2 billion, with Walgreens retail sales down 0.6%, impacted by a decline in items as the business cycles higher in home consumption in the prior year, combined with fruit and vegetable availability challenges in the current year. This was partly but not entirely offset by price inflation. On a three-year compound annual growth basis, or CAGR, sales in Australian food increased 5.3%. Whereas food companies' own and exclusive sales declined 2% in Q1, largely driven by fresh, with sales growth impacted by supply challenges in some categories. Long-last sales were in line with the prior year, outperforming total sales growth with categories such as frozen foods, drinks, and personal and baby care benefiting from their strong value proposition. Inflation continued to accelerate in Q1, with average prices in Australian food increasing by 7.3%, driven by continued input cost pressures in long life, double-digit inflation in fruits and vegetables, and ongoing increases in meat. We continue to see some signs of customer purchasing habits changing, but it remains unclear how much of this relates to cost of living pressures compared to COVID normalization. During the quarter, we continued our focus on delivering value through our Get Your Woolies Worth platform, with prices dropped and a low price freeze resonating strongly with customers, resulting in incremental volume growth across these lines. Woolies XP2C e-commerce decreased 10.8% to $1.2 billion, As customers returned to shop and install following elevated e-commerce sales during last year's lockdowns, with sales penetration of 10.2%. During the quarter, Everyday Rewards total members increased by 200,000 to 13.9 million, with record levels of weekly app users and members activating member boosts supported by continued enhancements to the Everyday Rewards app. We continue to enhance our everyday rewards member value offering following the completion of our transition to a new real-time loyalty platform, which unlocks more one-to-one promotions and relevant content in real-time for everyday rewards members. Australian B2B total sales per quarter increased by 26% to $1.2 billion, driven by a 36.1% increase in B2B food. While all B2B food businesses grew sales in the prior year, PFT contributed to most of the dollar growth, as it benefited from a normalization in trading conditions, with strong growth across all customer channels, new customer acquisition, and higher inflation. Well, with food's total sales declined 2.5% to $2 billion in Q1, impacted by the cycling of the prior year's Delta outbreak from mid-August, including a level four Auckland lockdown that continued until late September, On a three-year CAGR basis, sales increased by 4.7%. E-commerce sales growth and penetration continued to increase with sales up 5.9% in the quarter and penetration of 14.2%, up from 13.1% in the prior year. Turning to Big W. Total sales increased by 30% to $1.2 billion, driven by strong trading as customers returned to in-store shopping and recycled store closures in New South Wales, ACT, and Victoria in the prior year. All categories performed strongly in the quarter, with a mixed shift back towards everyday and home and apparel compared to the lockdown shopping behavior we saw in the prior year. BWX's e-commerce sales declined 51.8% in the quarter, primarily due to the cyclone of COVID-related online purchasing in the prior year. E-commerce sales over the past three years remained strong, with a three-year CAGR of 43.7%. Finally, on current trading and outlook. In October, year-on-year sales have improved in Australian food as we cycle out of the New South Wales and Victorian lockdowns of last year, with three-year sales growth broadly in line with Q1. In New Zealand, we are seeing signs of stabilisation in the trading environment. However, given the combination of lower sales and materially higher wage inflation, we currently expect H1F23 EBITOs 100 to 130 million Kiwi dollars. At this stage, we expect H2, F23 EBIT, to be above H1 this year and H2 last year, but with uncertainty on the trajectory of the improvement. A focus on value and making sure our customers get their Woolies worth remains our key priority in Q2. On Tuesday, we announced our plans to deliver value this Christmas with a selection of seasonal favourites, and entertaining essentials to be the same price or less than they were at Christmas last year. We also announced our Price Stop for Christmas program, covering 150 items, which will be in addition to our low-price weekly specials and personalized member boosts through Everyday Rewards. There are 51 days to go until Christmas, and we are very focused on delivering a much-needed, inspirational, and affordable festive season for our customers. Ongoing supply chain volatility and the possibility of another wet summer will be a key challenge to navigate, but we have seen strong early sales through our seasonal lines and we remain cautiously optimistic for the period ahead. In closing, I'd like to thank our team for their amazing dedication, our partners for their resilience and agility, and our customers for the ongoing support and the feedback they provide to help drive better experiences. I would also like to especially acknowledge our team, our customers and communities impacted by the recent floods in Victoria and New South Wales. I will now turn the call over to the operator for questions. To give everyone a chance, can I please ask that you limit it to one question per person and then rejoin the queue with any follow-up questions. Thank you.

Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Sean Cousins with UBS. Please go ahead.