It seems like Woolworths (ASX: WOW) can't catch a break, lately, with years of market-leading margins finally catching up with shareholders.
This afternoon, the Australian is reporting that "Woolworths has this afternoon been ordered to pay a fine of $9 million after admitting involvement in a laundry detergent cartel."
This comes on the back of news in February that, the ACCC took a successful action alleging Woolworths alleging "made false or misleading representations about the safety of a number of products sold under the company's Homebrand and Masters label." The retail giant was fined $3 million for that.
And in December last year, the ACCC alleged that Woolworths "acted in contravention of the Australian Consumer Law to eke $18.1 million from its suppliers."
While Woolworths shareholders are unlikely to be troubled by small fines (that arguably don't act as much of a dis-incentive), consumers are less likely to ignore that bad publicity.
Indeed, with fierce competition from Aldi at the cost sensitive end of the market, and Coles pressuring Woolworths in the traditional supermarket offering, it's hard to see why anyone would buy Woolworths shares right now.
In my view there is no valid reason to hold declining or underperforming companies in my portfolio. I believe long term returns depend mostly on selecting a few big winners in the portfolio. Therefore, I would prefer to invest in companies that have a decent chance of being big winners. Usually big winners are fast growing companies, but sometimes you can get a big winner by a contrarian decision to buy when sentiment towards a company is very negative. But I don't think Woolworths is there yet.
Key reasons to sell a company include falling or stagnating revenues, falling profits and the departure of a long serving CEO.
Each of these three considerations indicate to me that the odds are against Woolworths shareholders. With the business in decline, and debt weighing down the balance sheet, I would probably sell Woolworths shares if I owned any. Personally, I don't understand why someone would buy Woolworths shares at the moment, since there are many other blue chip companies on offer that are actually growing.
