Is Woolworths run as Australia’s best retailer over?

Is Woolworths run as Australia’s best retailer over?

Woolworths (ASX: WOW) shocked the market on Tuesday when it reported its slowest quarterly sales growth for twelve years – all the more shocking after Wesfarmers (ASX: WES) reported fantastic sales numbers for Coles only last week.

Same store sales in Australian food and liquor grew at about 3%, roughly half that achieved by Coles over the same period. And that excludes the disappointing numbers from Big W and the disastrous performance of hardware division Masters which continues to chew up capital and make no inroads into Bunnings’ market dominance.

It seems a lifetime ago that WES was being blasted for the poor performance of Coles since it bought the supermarket chain just before the GFC hit. But after a slow start, Coles has continued to gain market share while improving margins and returns. And amazingly there is still ground to be made up in areas and WOW just doesn’t seem to be up for the fight, and perhaps has been too distracted with its attempt to conquer the hardware market.

What's the outlook for JB Hi-Fi? Read our recent post here.

It’s been a rough few years for WOW with its former subsidiary Dick Smith (DSH) revitalised under new management and the misjudged entry into the hardware market. The market punished the stock on the day of the update, with the stock dipping 5% on the close.

That selling continued yesterday with the stock reaching a low of $33.11, a price not seen since last December. Interestingly CEO Grant O’Brien stated that WOW would not need to adjust its profit guidance but clearly the market has seen through that and punished the stock savagely.

While WOW remains a fantastically defensive business, there is little doubt that management is starting to be questioned for the first time in many years. That could potentially lead to further de-rating of the stock beyond what has already occurred on the perception of lower future earnings. So while we think WOW is still likely to be an excellent long term investment (with some of the best retail assets in the country), the short term could be cloudy while Coles continues to gain at WOW’s expense.

comments powered by Disqus

DISCLAIMER: Rivkin aims to provide clear and simple information to those visiting our website. If any part of this disclaimer does not make sense, please phone Rivkin and ask to speak with a member of our Dealing and Relationship Management Team. Rivkin provides general advice and dealing services on securities, derivatives and superannuation (SMSF). Rivkin also provide SMSF administration and accounting services. Rivkin does not provide advice that takes into account your, or anybody else's, investment objectives, financial situation or needs. We strongly suggest that you consult an independent, licenced financial advisor before acting upon any information contained on this website. Investing in and trading securities (such as shares listed on the ASX) and/or derivatives (such as Contracts for Difference or 'CFDs') carry financial risks. CFDs carry with them various additional risks that differ from more simple securities such as fully-paid company shares. Some of these risks include not owning the underlying instrument from which a price is being derived, settling trades 'over the counter' with a financial institution rather than on a stock exchange, and using leverage to gain access to trades that may have a higher face value than your initial deposit. This risk of leverage means that it is possible to lose more than your initial investment. Our aim is to create more life choices for our clients, which means improving the wealth of clients throughout many market cycles by nurturing a relationship spanning many years. If you are not comfortable with your understanding of the risks involved before using a Rivkin product and service, please contact our office to seek further information or a Product Disclosure Statement, or make an appointment to sit with one of our friendly financial experts. It is in our interest for your Rivkin experience to be a rewarding and comfortable one. Rivkin is a trading name of Rivkin Securities ABN 87123290602, which holds Australian Financial Services Licence No. 332 802.