Is the Woolworths Limited share price set to rise?

Woolworths Limited 

WOW Details
 
· Woolworth invested in pricing ahead of their peers:  Woolworths Limited (ASX: WOW) have well positioned itself to leverage the recovering retail sentiment in Australia as compared to its peers. As per the Australian Bureau of Statistics, the Retail sales in Australia have risen for a second straight month in May 2017, showing hopes of a recovery in consumer sentiment. Retail spending enhanced by a seasonally adjusted 0.6 per cent during the month to $26.08 billion, which is better than the market expectations of a modest 0.2 per cent rise. In April the retail spending increased 1.0 per cent, which was the biggest jump in monthly spending in two-and-a-half years. The group is well positioned to leverage from this recovering retail spending as they have already invested more than $1.5 billion to decrease prices as well as deliver superior in-store experience to consumers. This give an edge to Woolworths whose turnaround is faster than expected against their major competitor Coles, as per the recent survey conducted by UBS. Even though Coles is also investing in lower prices and on in-store experience, Woolworths had a better march, while Coles need to wait till Christmas to get those benefits. UBS survey showed that the group reported improvements across all 26 subcategories which enhanced their overall score by 0.5 points to 6.7 (out of 10). This performance was better than Coles for the first time since August 2012. Meanwhile, Wesfarmers is also trying to revamp their growth and reported that they tripled their investment to over $200 million, net of cost savings, for decreasing prices and enhance in-store experience in the second half.
 
· Targeting sustainable sales: Woolworths reported a solid like-for-like sales growth in their second quarter, beating Coles for the first time in eight years. They maintained their growth momentum in the Australian Food sales even for the third quarter of 2017, especially with the more stable and predictable nature of their daily and weekly sales. The group intends to maintain their focus in rebuilding sustainable sales momentum for the remainder of FY17 and into FY18. On the other hand, they would incur higher costs in key areas such as team incentives, depreciation and team training for the second half of FY17. WOW forecasts a better stock loss in the second half, but this might be partly offset by the impact of continued input cost price increases (particularly in meat and produce) coupled with their ongoing response to competition and promotional intensity. 
 
· Delivered strong Australian food division performance: The group maintained their Australian Food division sales in the third quarter of 2017 which increased by 5.1% to $9.3 billion while Comparable sales enhanced by 3.9%. On an Easter adjusted basis, overall sales enhanced by 5.6% and comparable sales grew by 4.5%.  Voice of Customer (VOC) scores showed major improvements against the same quarter in the prior year while overall Customer Satisfaction increased to 77% in the quarter and Store-Controllable VOC increased to 80%, in line with Q2’17. On-shelf availability and Fruit & Vegetables are the group’s major opportunities for further improvement while Transaction growth continued to be their major driver of growth with comparable Easter adjusted transaction growth of 4.1%. Comparable Items Per Basket growth remained positive leading to comparable Easter adjusted item growth of 4.7%. Meanwhile, the group’s investments in pricing paid off with Average Prices declined by (2.5%) during the quarter, similarly to the rate of decline to Q2’17 (-2.6%). This fall is mainly on the back of General Merchandise and Grocery, with Fruit & Vegetable prices marginally inflationary. Meanwhile, Fruit & Vegetable volume growth remained strong, while meat prices lost relative to Q3’16 despite higher input cost prices. The division’s online sales showed strong rise of over 20%. WOW closed three Supermarkets while opened two, reaching 978 Australian Supermarkets and 23 Metro Food stores.

                Australian Food division (Source: Company reports)
 
· BWS and Dan Murphy’s drove Endeavour Drinks Group segment: Endeavour Drinks Groupsales increased by 2.3% to $1.9 billion in Q3’17 against the prior corresponding period with comparable sales rising by 0.8%. Easter adjusted total sales enhanced 3.9% with Easter adjusted comparable sales rising by 2.2%. BWS and Dan Murphy’s showed solid Easter adjusted comparable growth in the quarter despite tough market conditions as the group’s focus on competitive prices paid off. Moreover, the hot weather in January and early February also drove the performance.But very wet weather in March in NSW, led to weaker growth. The group opened one Dan Murphy’s store leading the total fleet to 216. 
 
· New Zealand Food division performance was also strong: The group’s New Zealand Foodsales enhanced 2.1%to NZD1.6 billion in March quarter while Comparable sales surged 1.9%against the prior corresponding period. Easter adjusted sales surged 2.2%boosted by ongoing activity on price, service, and local ranging, as well as from the beneficial partnership between their Onecard loyalty program and AA Smartfuel launched in Q2’17. Meanwhile, the Countdown Supermarket Food Price Index enhanced 0.8% boosted by a combination of a return to inflation of dairy products, higher levels of inflation in fresh produce impacted by growing conditions and supply, and the later timing of Easter promotions.
 

Decent performance (Source: Company reports)
 
· Strategic plan for BIG W:  BIG Wsales continued to face pressure and lost over 8.6% during the third quarter with comparable sales declining by 8.2%. On an Easter adjusted basis, overall sales lost 6.1% while comparable sales fell 5.7%, in line with comparable sales growth in H1’17. Performance was hurt by apparel clearance activities as the division cleared their summer inventory to make way for new season apparel. Given the weakness of the division, the group finished the review of the BIG W strategic plan and customer value proposition during the quarter and currently in the process of implementing this plan. They are making efforts to restore price trust with consumers while appointed David Walker as the Managing Director for BIG W. Still the group expects a weak second half of 2017 and forecasts a loss before interest and tax of $115-135 million for H2’17. Given the implementation of strategic initiatives taken to compete in the challenging business environment and improving financials, we give a “Buy” recommendation on the stock at the current market price of $25.55
 

WOW Daily chart; (Source: Thomson Reuters)

Disclaimer
 
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.