Woolworths share price falls on $1.5b impairment news

The Woolworths Group Ltd (ASX: WOW) share price is edging lower on Monday.

In morning trade, the retail giant’s shares are down 0.5% to $36.00

What’s going on with the Woolworth share price?

Investors have been selling the supermarket operator’s shares today in response to the release of a trading update.

According to the release, there are two significant items that will be recognised in its FY 2024 half-year results next month.

The significant items relate to the non-cash impairment of the carrying value of the New Zealand Food reporting segment and a change in accounting treatment for the company’s investment in Endeavour Group Ltd (ASX: EDV).

In respect to the former, Woolworths has made “significant progress” on its Woolworths New Zealand transformation agenda. This includes 34 Countdown stores rebranded to Woolworths and the relaunch of key price mechanics and in-store value communication.

However, this has not been enough to turn around the fortunes of the business. Management notes that “the trading performance in New Zealand Food has continued to be challenging.”

As a result, it expects the New Zealand food business to report half-year earnings before interest and tax (EBIT) of NZ$71 million (including transformation costs). This will be down 42% over the prior corresponding period.

In light of this and its weaker medium-term outlook, a non-cash impairment of NZ$1.6 billion (~A$1.5 billion) will be recorded as a significant item with its half-year results.

Woolworths Group CEO, Brad Banducci, said:

Our confidence in the potential of Woolworths New Zealand and our transformation plan remains unchanged. While the short-term performance has been impacted by a variety of factors and the speed of improvement remains uncertain, we are seeing early positive signs from our Kiwi customers as our transformation gathers momentum.

Woolworths’ second impairment relates to the accounting treatment of its holding in Dan Murphy’s owner Endeavour. It will derecognise its equity accounted investment and recognise it as a financial asset, which means a loss of $209 million.

Trading update

Potentially offering some relief for the Woolworths share price today was news that its Australian Food and Pet care businesses have performed positively during the first half.

As a result, Woolworths Group’s unaudited EBIT before significant items is expected to be $1,682 million to $1,699 million. This will be up 2.8% to 3.8% over the $1,637 million record a year ago.

The post Woolworths share price falls on $1.5b impairment news appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro has positions in Endeavour Group. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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