Woolworths shares nosedive after flagging $150 million in COVID costs

Woolworths has flagged an additional $150 million in costs as a result of COVID-19 supply chain issues, causing the supermarket's share price to nose dive by more than 8 per cent.

Posting an FY22 trading update to the market this morning, Woolworths said it anticipates direct costs to Aussie stores as a result of the Delta variant to be approximately $150 million, split between supply chain issues and measures to protect customers and team members.

Soon after the update was posted Woolworths' share price dropped 8.25 per cent from $40.72 at the close of trade on Monday to the current price of $37.21, wiping more than $4 billion off the grocer's market capitalisation.

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Indirect disruptions to the grocer's distribution centres has also seen the cost of running COVID-safe warehouses jump by $60 million to $70 million.

CEO Brad Banducci said the first half of FY22 has been one of the hardest yet for Australia's biggest supermarket chain.

"The first half of FY22 has been one of the most challenging halves we have experienced in recent memory due to the far-reaching impacts of the COVID Delta strain and its impact on our end-to-end stock-flow and operating rhythm," Mr Banducci said.

"We have continued to put the health, safety and wellbeing of our customers and team first in the context of this challenging and volatile operating environment."

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Supply chain obstacles as a result of the Delta strain of COVID-19 may prove to be more financially expensive than earlier variants of the virus.

"The ongoing material costs of operating in a COVID environment has impacted our expected earnings in H1. COVID has had a significant impact on costs, even more so than last year due to the combination of both direct COVID-related costs, together with the indirect impacts from disruption caused by COVID," Mr Banducci said.

"This includes the significant disruptions we have seen across the end-to-end supply chain, and the material inefficiency this causes in our stores, distribution centres and transportation."

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Mr Banducci said despite supply chain challenges Woolworths is placed well to provide ample stock for the bumper Christmas season and will be rewarding its staff.

"In addition, to recognise the significant efforts of all the Group's front line teams across Australia and New Zealand, our H1 results will also include a special Group Team Christmas Thank you bonus payment of $35 million to $40 million as previously disclosed," Mr Banducci said.

Woolworths' share price was rocked by the trading update, falling more than 8 per cent after the release to the market.

At the time of publishing Woolworths Group was trading at $37.22, having dropped 8.21 per cent by 1pm AEDT.