With the share price of Woolworths Limited (ASX: WOW) now down 23% over the past year, the stock is trading at a level which not only represents a 52-week low but in fact the shares are currently trading just 4% above where they were five years ago.
In other words, excluding dividends, owning this leading supermarket operator has provided shareholders with capital growth of less than 1% per annum!
In contrast, simply owning a representation of the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) would have produced returns of 4% and 14% over the same one and five-year periods respectively.
While it's reasonable for investors to question what management have been doing to justify their sky-high salaries in the face of the appalling share price performance, looking forward there is thankfully some reasons for hope…
- Woolworths has implemented a "Lean Retail" operating model to drive the group's three-year growth plans. The model is expected to result in efficiency savings of more than $500 million across the 2015 and 2016 financial periods. Critically, these cost savings will enable the company to implement its objective of improving its customer offering.
- The group is also set to focus on improving the supermarket experience for its customers through lower prices, improved service, refurbishments and innovative offers. It's a necessary step considering the resurgence in market position from competitor Coles, owned by Wesfarmers Ltd (ASX: WES), and indeed as Woolworths' management recently stated, the "new pricing and value strategy will be implemented to neutralise Coles and contain Aldi's impact on our sales".
- One of the major areas of concern amongst analysts regarding Woolworths in recent times has been the enormous costs sunk into establishing the Masters Home Improvement business. If management can set the division on a clear path to profitability, investors are certainly likely to become more comfortable with owning stock in Woolworths given that the domestic hardware market remains fragmented, with significant long-term growth opportunities.
If the top brass at Australia's largest retailer can implement its stated strategy and return Woolworths onto a growth path which investors have come to expect, now could be an opportune time to acquire the stock.
