Woolworths Group Limited

Thank you for standing by and welcome to the Woolworths Group F24 Q3 sales announcement. All participants are on 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 Banducci, Managing Director and CEO of Woolworths 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, the Gadigal people of the Eora nation, and I'd like to pay my respects to elders past and present. Thank you for joining us today for Woolworths Group's third quarter sales results for the F24 financial year. Joining me this morning are Stephen Harrison, our CFO, Natalie Davis, Managing Director of Woolworths Supermarket, Gar Brent, Managing Director of the Woolworths Food Company, Online from New Zealand, Spencer Son, Managing Director of Woolworths New Zealand, Dan Haake, Managing Director of Big W, Annette Carantone, Managing Director of Primary Connect, and also joining us are Amanda Bogle and Sally Copeland. Sally stepped into the role of Interim Managing Director of Woolies X in early April to allow Amanda to spend more time with our customers, partners, and teams across the group as part of her transition plan before assuming the CEO role in September. Moving to our results. Q3 was a challenging quarter. We have seen a noticeable shift in sentiment and behaviours as customers adjust their budgets and spending following the Christmas holiday period. This impacted both our customer metrics and sales across the group. Our customer survey has also shown a meaningful increase in customers across all segments, telling us they are struggling to make ends meet given the material increases in mortgages, rents, utilities, insurance and other key household expenses. We know our customers shop in our stores multiple times a week and grocery price increases are very visible to them. This together with customers feeling they have some control over their food and grocery budget brings grocery price increases into sharp focus. Importantly, food inflation has continued to moderate materially in Australia and New Zealand as external inflationary pressures abate. And in Q3, our average prices were broadly flat compared to the prior year. Turning to the detail in our results, group sales increased by 2.8% to $16.8 billion for the quarter, and Australian food sales increased by 1.5% to $12.6 billion. In Australian food, or with food retail sales, increased by 1.5% on an adjusted basis. On a reported basis, sales increased 1.3% or 2.5% excluding tobacco. Sales growth was impacted by a strong Q3 last year and an ongoing moderation in inflation, mainly driven by ongoing deflation in fruits and meats, supplemented by lower inflation in grocery food, everyday needs, and everyday chill. Comparable items declined 0.5% in the quarter, impacted by the cycling of collectibles campaign in the prior year, as well as some availability challenges in fresh categories in January and February, and more broadly in rings. due to the CO2 shortages. Pleasingly, item growth improved over the quarter and returned to growth in March and April. Wal-Mart's food companies' own and exclusive brand sales grew 2.3% in Q3, with item growth of 1.8%. Categories such as pantry, frozen foods, and household care performed strongly, reflecting the value offered by our own brands in these categories. And we also saw good sales growth in fresh categories due to lower prices. Average prices in Q3 declined 0.2% compared to the prior year, with the moderation driven by deflation of 6.2% in fruit and vegetables, 9% in meat, and long-life inflation of below 2% excluding tobacco, as we exited the quarter. Will exec's e-commerce sales increase by 18.4% to $1.5 billion, with penetration reaching 12.4%, an increase of 1.8 points over the prior year. Growth continued to be driven by same-day orders, with 86% of B2C sales delivered within 24 hours of order placement. Quartology revenue declined 4.1% in the quarter, impacted by the cycling of collectibles program last year. However, underlying revenue growth was broadly in line with H1. Rewards and service platform sales increased 15.2% in the quarter, with more than 720,000 new members joining Everyday Rewards and total active members reaching 9.7 million in Q3, with scan rates continuing to grow. Australian B2B sales increased by 3.2% compared to the prior year, with growth rates impacted by the exit of our international businesses in F23. Excluding the exited businesses, sales increased by 5.1%, with PFD growth solid at 5.4%. New Zealand food sales increased by 0.2% in Q3, or 1% on an adjusted basis. Sales growth was also impacted by lower inflation and a very competitive trading environment. We made good progress on Woolworths New Zealand's transformation during the quarter, with a solid increase in both value for money and fruit and vegetable customer scores, up six and nine points respectively, following the reset of key pricing mechanics and improvements in fresh during the quarter. BW sales for the quarter declined by 4.1% or 4.9% on an adjusted basis, reflecting increased consumer caution and down trading, most evident amongst budget customers. By trading segments, Sales in play were broadly flat, with growth in books, toys, and gaming. In everyday categories, a strong performance in beauty, celebration, and events, more than all set lower sales in pet care and baby and nursery. Sales growth in clothing and home were most impacted in the quarter, with clothing sales impacted by a slower start to autumn-winter, and home sales impacted by ranging changes that resulted in availability challenges. Turning to current trading, Immobiles Food Retail adjusted total sales growth in April was broadly in line with Q3, with inflation continuing to moderate and items showing ongoing modest growth. Adjusted sales growth in April has also remained broadly in line with Q3 for both New Zealand and Big W. While we are beginning to cycle softer sales in McW in the prior year, the aforementioned slow start to autumn winter clothing sales is creating some downside risk to our previous expectations of even break even in H2. Today's release also provides an update on our New South Wales supply chain transformation, and in particular the major projects reaching or nearing completion in F25 and F26, including our Orbit CFC and our Moorbank NDC and RDCs. Construction on these projects has generally been progressing to plan, but some weather and other minor project delays has led to an overlap of the expected cost of implementation, dual running and transition, which will peak in calendar 25. F25 incremental costs are expected to be approximately $100 million higher than F24, and F26 we expect a similar total cost before net benefits are realised in F27 and a double-digit row fee expected in F28. We remain confident in the benefits we will realise from these automation investments, which will materially enhance the experience of our customers and efficiency in New South Wales when complete, and support the strategic importance of building supply chain resilience. In conclusion, Our focus for the rest of F24 remains on ensuring our customers get value and feel value. We expect trading conditions to be challenging for the next 12 months due to competition for customer shopping baskets and as inflation remains in a very low single-digit range. However, as a group, we are well positioned to manage this more challenging environment through our ongoing focus on our customers and our well-progressed end-to-end productivity plans. 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. If you wish to ask a question, please press star one 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. A reminder to please limit yourself to one question per person. If you wish to ask further questions please rejoin the queue. Your first question comes from Tom Keareth with Baron Joey. Please go ahead.