Woolworths is set to release results for the six months
ending 25 December 2016 tomorrow.
The group has given fairly thorough guidance on what to
expect (in terms of sales and earnings) through the release of a recent trading
Trading statement guidance
Earnings per share (EPS) for the period are expected to be a
staggering 30% to 40% higher than the prior years comparative interim period,
although this is largely/solely due to the disposal of a property in Sydney,
Australia. The adjusted headline EPS
figure guides towards a much less impressive 0% to 5% decline over the period.
A breakdown of the group’s sales by
division shows firm growth in its food segment; marginal growth in clothing and
merchandise; and a contraction within the David Jones and Country Road
divisions. The group has attributed the poor performance in the latter
divisions to the timing of “Boxing Day” on 26 December, which will only see the
sales contributions thereof reflect in the second half of the 2017 financial
year. The termination of the Dick Smith electronics concession also weighed on
the sales performance of the David Jones division.
The financial services debt book showed
growth of 2.3% year-on-year (YOY), although the annualised impairment rate for
the period increased from 4.8% to 5.9%.
The food division remains the standout
segment within the Woolworths group, providing a bit more of a defensive hedge
in a weak consumer environment than predominantly apparel-focused retailers
would. Markets will be looking within the upcoming results to see the group’s
progress and plans for the David Jones Food rollout in Australia, for which
some of the recent property sales cash is being allocated for, as this is seen
as a possible catalyst for future growth within the company.
A key deliverable investors will be looking
at would be the company’s progress towards driving synergies and efficiencies
across the group, particularly between Woolworths SA (WSA), David Jones and
Country Road, the latter of which saw cost of sales in the 2016 financial year at
more than double that of WSA.
A Thompsons Reuters poll of 14 surveyed
analysts (see image below) arrives at a buy consensus for the stock. Analyst estimates
for Woolworths currently give a 12-month share price target range of 6 386c to
10 933c, with a median of estimates arriving at an 8 660c valuation for the
Broker views are subject to change
following results releases and as such we will look for any changes thereof
post the release of the group’s interims for a follow-up report.
Shaun Murison is a senior market analyst at IG.