The COVID Grinch that stole Woolworths’ Christmas profit

December quarter sales to date are still strong against pre-COVID levels, but the rate of growth is set to be slower than it was in the same period last year.

While Woolworths boss Brad Banducci says the supermarket is generally covered for products for the Christmas period, he is cautioning customers that those waiting until the last minute may be disappointed.

It’s those triple-smoked ham seeking connoisseurs that need to get their skates on, says Banducci.

The supply chain disruptions have become a feature across Australia and the world, particularly in the fast-moving goods sector.

From ‘Palletgate’ to ‘Freightgate’ and ‘Containergate’ we can now add ‘Dieselfuelgate’ to the list of issues (rather than scandals) that feed into logistics fuelled inflationary pressures.

Banducci on Tuesday generously invited its supermarket rivals to the COVID Christmas party, noting that while Woolworths sales had slowed, its market share hadn’t fallen – the inescapable inference being that others are suffering equally.

Not surprisingly, Coles’ share price also took a hit yesterday falling 3.3 per cent in morning trading.

Of course none of the issues that led to the profit warning were new – six weeks ago Banducci had outlined the cost pressures that he had already seen coming down the pipe.

It’s the size and persistence of the cost pressures that has caught investors unaware.

The market was anticipating that COVID costs would begin to ease in the current half and earnings would come in at around $1.4 billion rather than the $1.2 billion that Woolworths is now guiding to.

Tuesday’s announcement from Woolworths highlights the phase two of the pandemic – the supply disruptions that could linger for a while. The trouble is no one can be certain about how long.

In the first phase of the pandemic, costs were attached to labor shortages/roster changes and staff redeployment that Woolworths needed to undertake to keep employees safe and ensure roles were filled while thousands of its workers were being forced to isolate.

And then there were the additional ‘health ambassadors’ that were needed, the teams of cleaners and the PPE and distancing monitors.

The trouble for Woolworths shareholders is that these costs have largely been borne by the company rather than being passed on to customers through higher prices.

Banducci on Tuesday warned that there are some inflationary pressures on certain items where suppliers have increased their prices, while the bulk of the corporate cost increases are being absorbed.

That’s the squeeze that has knocked the stuffing out of Woolworths’ market capitalisation, just weeks before Christmas.

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