When Profit Margin is mentioned, usually the margin from...

When Profit Margin is mentioned, usually the margin from operating activities is meant - Woolies operating margin sits at 7.01% for 1H24. This is a good starting point in order to find out how well a company does from normal operating activities. For a retailer, this is a nice situation, so for the investor as well. So Woolies did well.

The operating margin tells one more or less "how much the management has to play with" after goods, employees and banks are paid.

The OM is before the accountants come in with their depreciation, valuations and corrections, non-cash items, before the taxman comes in with tax schedules, derferments, subsidies, and before the SH is paid, etc. Big investment "mistakes" and their subsequent re-valuations are found here as significant items and reduce "what's left over in the end" to as some would say "razor thin margins". I think that's mistaken.

One can say:

1. High Operating Margins allow (or buffer) for investment (management) mistakes. Point in case for this HY report. Nevertheless, as an investor you would want a company with a high OM.
2. One would want to have an idea of how the OM is achieved; eg. unique quality product, unique service provision, growth industry, innovative solutions provider etc.

Wow and col find themselves under scrutiny, because it appears that they manage to raise the prices to the customer whilst keeping the cost of goods to the supplier well under control; thus making 7% for themselves so to speak. No one would blink an eyelid if their offering were of unique quality, service extraordinary, innovative etc.

It is rather the idea that 7% OM is a direct result of squeezing the supplier whilst also milking the consumer due to a (perceived ?) duopoly situation. This would not be possible under "proper" competition. Wow and col seem to "enjoy" a duopoly in Australia, and suppliers and consumers pay a kind of "duopoly fee". Why duopolies and monopolies are bad for an economy in general is extensively treated in microeconomics.

The advice for a single person - in the meantime - therefore, is to buy their shares: the resulting dividends and perhaps SP gains will buffer against any price rises from the supermarkets. In other words: Consume less and invest more. Perhaps not a bad idea overall.

Just my 5 cents worth.