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The group has released a comprehensive guidance on what to expect via a trading statement released on 13 July.
Earnings and sales guidance
In terms of year on year sales growth, the Woolworths food division looks to have continued its trend of leading the group’s divisional sales (up by 8.6%). The David Jones and Woolworths South Africa’s Clothing and Merchandise sales divisions have been relatively flat (1% and 1.4% growth respectively), while Country Road group sales have increased by 5.1% (in AUS terms) aided by the newly acquired Politix (adding 3.7% to sales).
Earnings per share are expected to have increased by between 20% and 30% over the period. However the increased earnings have been boosted by the David Jones disposal of its Market Street property in Sydney as well as the benefit of a lower effective tax rate over the reporting period. Excluding the disposal, headline earnings per share for the group look to have actually contracted over the period by between 5% and 10%.
While the Food Division has achieved decent growth over the year, it is a far lower margin business than the Clothing and Merchandise division, which has stagnated over the year (contracted in the second half of 2017). The growth in Australian operations is encouraging, despite being mainly acquisitive, in what is a competitive and constrained consumer environment.
The initial reaction to the trading update from Woolworths was positive sparking a strong move higher from the multiyear low. The company, as well as the rest of the sector, have also extended gains following the South African Reserve Bank’s decision to cut interest rates and the assumption that this may have been the start of a monetary easing cycle which would improve the health of the domestic consumer and hopefully stimulate increased spending.
The resulting share price move in Woolworths, following tomorrow’s results, will likely be dictated by which end of the earnings guidance the actual figures are realised.
Key focal points in the results will be margin trends (particularly that of Country Road), further guidance relating to David Jones synergies, its food strategy as well as the group’s outlook for the new financial year.
Broker ratings and target prices
The mean of analyst estimates, according to Standard and Poor’s Global, arrive at a longer term target price for Woolworths of 7097c per share.
The broker rating according to Reuters’ poll of 13 analysts suggests Woolworths Holdings to be a hold at current levels.