Shareholders in Australia's largest but embattled retailer Woolworths Limited (ASX: WOW) are enjoying some positive momentum in the share price today with the stock jumping around 2% by mid-morning after the company released an update to the market.
Despite today's gains, in the past 12 months Woolworths' share price has declined by over 20% which has meant this blue-chip has dramatically underperformed the 3% rise in the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO).
Here are the five key details from the company announcement which has influenced investor sentiment and encouraged buyers into the stock today:
CEO retirement: Mr Grant O'Brien, who has been with the group in a range of positions for 28 years, has announced that he believes it is in the best interest of the company for new leadership to oversee the strategic plans which are aimed at setting Woolworths back on a growth trajectory.
Trading Update: The group reaffirmed that it is on track to exceed its $500 million in stated cost savings over the next two years and that these savings are already being reinvested in lower prices, better service and an enhanced offering to customers. On a less positive note, food and liquor sales in the fourth quarter are tracking below expectations with sales registering a decline of 0.7%, compared with the prior corresponding period.
Outline of significant items: Last month Woolworths outlined its plans for the strategic overhaul of the group. The company has provided details around the costs of $270 million involved alongside 1,200 redundancies.
Update on earnings guidance: The group has downgraded its guidance for the current financial year from growth in net profit after tax before significant items of 1.8% to expectations now for a flat result year on year.
Other management changes: The Director of Group Retail Services Ms Penny Winn has also announced her intention to leave Woolworths later this year.
Buy, Hold, or Sell?
The decline in Woolworths' share price means the stock now trades on a much less demanding multiple than one-year ago and at a level more in line with what investors should be comfortable paying for a blue-chip stock.
If the new management team is able to at least maintain earnings at current levels then the share price might find support and now could be a reasonable entry point. If however the group is forced to continue to reduce its industry-leading margins and spend significant funds just to maintain its market position in the face of increased competition then arguably it would be best to continue avoiding the stock for the time being.
