Why is the Woolworths (WOW) share price slipping?
Shares in the supermarket giant have steadily risen and are up 9% in the last 6 months.
Supermarket and retail giant Woolworths (ASX: WOW) is among the top-traded stocks on the ASX boards on Wednesday. At the time of writing, Woolworths shares were trading 1.6% lower at $42.64.
Why the Woolworths (WOW) stock price is under pressure today
Woolworths announced an update on significant items that would affect its FY21 accounts. Overall, the announcement was positive, with the company expecting to report a $57 million pre-tax net gain in its full-year 2021 results.
The main contribution to this would come from a $220 million valuation gain on data analytics company Quantium, in which Woolworths raised its stake to 75% last month. The company will recognise the non-cash gain to reflect the fair value of its original 47.2% interest compared to the previous carrying value.
However, traders have latched onto details about the impairments, which likely indicate a longer term impact on its business model.
Woolworths announced it will recognise costs of $69 million related to its demerger of drinks and hotels arm Endeavour Group and acquisition of a majority stake in wholesale distributor PFD Food Services last month.
It will also account for redundancy costs of $44 million related to the closing of its Minchinbury distribution centre in 2024. The retailer announced it will spend another $400 million on the design and construction of a new facility at Wetherill Park near Sydney to bolster its NSW supply chain network.
Metro stores under pressure
Woolworths is taking another $50 million hit to reflect the value of its Metro Food Stores network following the emptying of CBDs across Australia of workers due to the COVID-19 pandemic.
“Sales in these locations have been, and remain, materially negatively impacted by COVID. While the group remains committed to the rollout of Metro Food Stores, it will record a non-cash impairment charge of approximately $50 million in relation to store and lease assets across 13 stores within the network,” the company said in a statement.
"This impairment charge reflects a balanced view on the speed of recovery of CBD and transit customer movements and the likely impact of this on Metro store,” it added.
Woolworths posted a 28% jump in first-half net profit to $1.14 billion in February.
Shares in the company have seen a steady climb over the last few months, and despite volatility, the stock has risen 9% in the past 6 months.
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