As a stock, Woolworths Limited (ASX: WOW) would be categorised as a "stalwart", meaning it doesn't shoot up like REA Group Limited (ASX: REA) in a high arching manner, but it travels up in a measured movement like the foothills of a low mountain range. It may not be exciting for traders, but for investors it's like real estate movement or bonds. Buy at a fair price and sit on it, and the company grows at a mature pace.
It's the kind of stock that you should have in your portfolio because it can tick along, returning a stable income of dividends, with the share price appreciating at a steady rate.
In 2013, statutory net profit was up 24% from the pcp due to some heavy abnormals adjustments, but just as important was the approximate 6% rise in revenue, the biggest increase in total revenue since 2008.
Being one of the largest retailers in Australia, it needs to keep growth up in a mature food retailing industry because profit margins are usually between 3%-5% annually. Wesfarmers Ltd (ASX: WES) is in the same boat – it needs large amounts of revenue to move the needle and after buying the Coles Group and taking control of it in 2007, net profit margins that were once regularly 7%-10% now are in the 3%-4% range.
Growth of Masters in numbers and earnings
Although the start has been slow and not without initial earnings setbacks, Woolworths' new DIY hardware chain Masters is showing movement. Its segment sales of $393 million over the half-year ending December are only 1.4% of the supermarket segment, it saw a 49.4% increase on the first-half of 2013. Together with the Home Hardware chain the home improvement segment sales increased 25%. This is how the company is going to ensure that it can keep up the overall earnings growth rate and supplement supermarket and general merchandise sales over the long term.
Foolish takeaway
Foreign owned supermarket chains like Costco and Aldi are beginning to move into regions and towns that were once territories where only the two big retailers fought it out. There will be more competition, but how well the newcomers can take market share is a big question mark.
