WOOLWORTHS A TURNAROUND STORY | Marvin Germo
Woolworths stock

WOOLWORTHS A TURNAROUND STORY

By: Marvin Germo | May 20, 2018

Company Background

Woolworths Group Limited, registered as WOW in the ASX, is a company that is mainly involved in the retail industry in Australia and New Zealand. It is the second largest company in Australia as well as in New Zealand in terms of revenue. Aside from operating retail stores, it is the largest liquor retailer and largest hotel and gaming poker machine operator in Australia. It operates supermarkets, liquor retailing, hotels and pubs under the Australian Leisure and Hospitality Group (ALH Group) umbrella, and discount department stores.

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Banducci’s Turnaround Project

While 2016 might have been a terrible year for the company due to the failure of its Masters venture, Brad Banducci was appointed as the new CEO in February 2016. After a few months under his leadership, the company was able to experience a positive substantial change in its performance. The Group’s Chairman Gordon Cairns claims that there’s still an opportunity to make improvements and they’re currently working on it.

WOW lost money in 2016 but started to turn things around and made a profit on three consecutive earnings disclosures.

Growth likely to be seen

The Group’s Net Profit after Tax (NPAT) grew to 37% compared to the same period last year. This growth was mainly due to strong earnings momentum with respect to Australian Food, Hotels and Petrol segments. Surprisingly, the company also made a 3.1% same-store growth in the Q2 of 2017 which was higher than market expectations.

Woolworths is planning to sell its petrol business to BP, a British multinational oil and gas company headquartered in London, despite the 27.9% increase in Earnings before Interest and Tax (EBIT). As for its New Zealand Food and discount department store, Big W, it detracted from its earnings with an EBIT loss of $10 million which is said to horrifically end with another $80-120 million loss for 2018. Big W’s sales dropped by 6% despite the cost reductions made.

As mentioned above, the Masters venture failed therefore leading to a major loss in the group’s earnings. The resulting $1.39 dividend three years ago was narrowed down to $0.77 in the following year. However, the good news is, this year’s interim dividend increased by 26.5%.

Buying the undervalued

Despite the problematic Big W losses and Masters venture’s failure, the company is clearly recovering from its losses and it’s slowly reforming its plans for the coming years. CEO Banducci has certainly been leading the company in the right direction and the recovery can be seen in its financial health. Buying Woolworths stocks now might be the best idea since they have a high potential to compete in the market again. Sure they might have had losses but management is efficiently fixing the problems and issues they have.

Its financial statements show a slow but stable growth and the proceeds from its expected sale of the petrol company will strengthen it. In no time, it will bounce back to being a high-quality dividend stock. As an investor, it’s best to buy the stocks now while the price is reasonably low.

Woolworth’s stock price closed at $29.03 last May 18, 2018.

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