Woolworths surges to 17mth high of $35/sh on earnings – just don’t ask about tobacco

Core Viewpoint - Woolworths has experienced a significant increase in share price despite a substantial expense related to a Federal Court wage ruling, with investors focusing on the company's strong net profit after tax (NPAT) growth [1][2]. Financial Performance - Group NPAT (pre-significant items) rose by 16.4% compared to the previous corresponding period (pcp), reaching $859 million [1]. - After accounting for the wage payout, group NPAT fell nearly 50% compared to pcp, indicating a temporary setback that investors are willing to overlook [2]. - Woolworths announced a dividend of 45 cents per share, which is a 15% increase from pcp [2]. Sales and Market Trends - Australian food sales increased by 3.6% in the first half, with Woolworths Food Retail sales (excluding tobacco) climbing by 4.3% [3]. - The company's food EBIT for the first half jumped by 9.9%, with margins improving by 32 basis points [3]. - Big W reported a more profitable half, driven by clothing and petware sales, although customers are increasingly focused on finding the best deals due to the cost of living crisis [4]. Consumer Behavior - The Australian consumer is exhibiting bargain-hunting behavior, reflecting ongoing economic pressures, particularly among mortgage holders facing higher interest rates [5]. - Woolworths has introduced 800 products under its 'Lower Shelf Price' program, indicating a strategic response to consumer demand for value [6]. Challenges - Tobacco sales remain a persistent issue for Woolworths, contributing to gross margin increases, but overall margin growth could be negatively impacted if black market tobacco continues to divert customers [7].