Retail giant Woolworths has endured one of its most challenging trading periods following the emergence of the highly contagious Delta variant of the coronavirus.
The supermarkets operator said its stock flows and operating rhythm were rocked by the scare in the first six months of fiscal 2022.
“The first half of F22 has been one of the most challenging halves we have experienced in recent memory due to the far-reaching impact of the COVID Delta strain,” chief executive Brad Banducci said on Tuesday in a market update.
He said the costs of trading in a COVID environment would affect first-half earnings.
Woolworths, which will release its first-half results in late February, expects to take a direct cost hit of $150 million in its Australia Food division in addition to direct costs of between $60 million and $70 million.
Australian food earnings before interest and tax are forecast to be between $1.19 billion and $1.22 billion, compared with about $1.33 billion in the same period in fiscal 2021.
Woolworths shares dropped more than 8 per cent on Tuesday after the retail giant revealed the hit to its first-half earnings. Rival supermarket operator Coles fell 3.74 per cent to $17.20.
Mr Banducci also saw challenges in Christmas trade, namely sourcing goods due to the supply chain difficulties of the pandemic. He said the supply issues and virus disruptions in the first half of the financial year had put unprecedented strain on the business, prompting a $220 million cost blowout.
“It’s not going to be an easy ride into Christmas,” he said during a call with analysts.
“We’ll have a white-knuckle ride – not in demand, but in having the stock there for them to buy.”
Consumer electronics and some toys were proving difficult to source for Big W outlets, Mr Banducci said. he urged shoppers to buy sooner rather than later, because some products might be unavailable by December 25.
“We really are running out of most of our key Christmas detail lines in Big W,” he said.
“We try to make sure we’ve got enough, and we will have alternatives for consumers, but in the next few weeks, if there’s something really special you want from one of our stores, I would encourage consumers to buy it earlier rather than later.”
The retail giant will also book a bonus payment for staff of between $35 million and $40 million as a way of saying thank you for their efforts during the pandemic.
Last week, food and grocery distributor Metcash, which supplies the IGA supermarkets network, reported it had benefited from COVID lockdowns.
Its first-half net profit rose 3 per cent to $128 million, as more people shopped local during COVID-19 lockdowns. Underlying pre-tax earnings expanded by almost 14 per cent to $231.2 million in the six months ended October.
CEO Jeff Adams said the rise was a “significant achievement given the many challenges in the half, including staff isolations, labour shortages, supply chain issues, continuously changing health regulations and other lockdown related impacts”.
Metcash cited a preference for local neighbourhood shopping and a shift from cities to regional areas as supporting a rise in sales of 1.3 per cent to $7.2 billion.
The sales momentum is forecast to continue into the second half, particularly for food and liquor ahead of Christmas and New Year.