by Chris Becker
One of the darlings of the defensive end of the stock market, Woolworths (WOW) is facing mounting pressure with the retirement of chief executive Grant O’Brien and the announcement of over 1200 job cuts as profits flatline.
More from Fairfax:
The shock departure comes just weeks after Mr O’Brien outlined a plan to revitalise Woolworths’s core food and liquor business by slashing capital expenditure and costs and pouring the savings into lowering prices.
However, the disappointing sales trend in the March quarter has not improved. Woolworths said in a statement that there has been “no improvement in May and June to date” with sales in the fourth quarter to date running 0.7 per cent below the previous year, adjusted for the Easter trading period.
“At the recent investor day we set out clear strategies to grow our business over the next three years and we have been working hard to execute these plans,” Mr O’Brien said in a statement to the ASX.
“However, the recent performance has been disappointing and below expectations. I believe it is in the best interests of the company for new leadership to see these plans to fruition.”
Indeed. This is somewhat reflected in the share price, now at a two year low and possibly showing some value here, with a dividend yield over 5%:
Woolies profits are flat lining as its main customers face deflationary pressures across the board amid sector wide competition, mainly from new entrant Aldi. Smaller competitor Metcash (MTS) recently announced large losses, selling off its automotive division to concentrate on the flagging groceries side in its IGA brands.
Its going to be a long hard road with minimal share market return for investors in these defensive stocks, although they do represent good yield stocks at current prices. In any future downturn, defensives should hold steady against more speculative parts of the portfolio, but I wouldn’t be overweight here due to the lower household income meme that has years to run.