Woolworths results preview

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 statement.

Trading statement guidance overview

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%.

Comments

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.

Broker view

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 stock. 

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.