Australia's largest retailer and one of the ASX's best stocks, Woolworths Limited (ASX: WOW), reported a generally pleasing set of interim results last Friday, however it failed to excite investors with the stock closing the day down 1%, against a fall in the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) of just 0.1%. Here are some of the highlights and lowlights from the results.
The Good
- Food and Liquor comparable sales growth a respectable 3%
- Hotels division the standout with earnings growth of 16.4% with further acquisitions expected to provide a pipeline for more Dan Murphy and BWS store openings
- Online sales surpassed $1 billion for calendar year 2013
- Both Cost of doing Business (CODB) and profit margins went in the right directions, with CODB falling 6 basis points (bps) and EBIT/Sales increasing 9 bps
- Earnings per share were up 4.9% to 106.1 cents per share (cps)
- The board declared a 4.8% increase in the interim dividend to 65 cps
The Bad
- Return on Funds Employed (ROFE) fell 87 bps to 14.9%
- Earnings from the Home Timber and Hardware chain fell 29% to just $7.5 million
- General Merchandise division (primarily Big W) recorded a 6.9% drop in earnings
- Fuel volumes only expanded by 0.6% with management citing competitor activity focussed on increased fuel discounts as the culprit
The Ugly
- The recently launched home improvement chain Masters – which has been positioned to compete with the Wesfarmers Limited (ASX: WES) owned Bunnings business – reported losses of $71.9 million, up from $69.1 million in the prior corresponding half.
Foolish takeaway
There were 38 Masters' stores trading at 31 December 2013, with management expecting 49 stores to be open and trading by the end of June. Currently it is hard to gauge the success or failure of this growth venture given the early stage of the business. However the significant capital investment and ongoing trading losses mean management has its work cut out to provide shareholders with a respectable return on invested capital. For this reason the Home Improvement division will continue to be closely monitored and scrutinised by investors.
