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Woolworths results preview

Woolworths Holdings is expected to release full year results on 24 August 2017. 

Woolworths
Source: Bloomberg

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%.

Comments

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.

Further considerations

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. 

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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This information has been prepared by IG, a trading name of IG Markets Limited and IG Markets South Africa Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. International accounts are offered by IG Markets Limited in the UK (FCA Number 195355), a juristic representative of IG Markets South Africa Limited (FSP No 41393). South African residents are required to obtain the necessary tax clearance certificates in line with their foreign investment allowance and may not use credit or debit cards to fund their international account.