Citi analyst Craig Woolford has reaffirmed its 'sell' recommendation on supermarket giant Woolworths Limited (ASX: WOW).
Mr Woolford says the peripheral businesses, Big W and Masters are dragging the overall group performance down, with Food and Liquor remaining in a strong position.
Big W saw like for like sales, which excludes new stores opened during the period, fall 5.9%. Mr Woolford says the discount variety retailer is struggling with ongoing price deflation and improved competitor offerings.
Wesfarmers Ltd (ASX: WES) has turned Kmart into a virtual home brand or private label offering, while trying to differentiate it from its struggling Target business. Target saw its March 2014 quarter sales slip 3.6%, while Kmart sales were virtually unchanged, indicating the retailer is facing similar issues to Big W.
And while Wesfarmers' Bunnings hardware is going great guns, Mr Woolford says Woolworths' Masters sales per store 'remain very sluggish'.
As a result, Mr Woolford is forecasting net profit growth of 5.8% in the 2014 financial year for Woolworths, and has a price target of $32.20 on the company, close to 15% below its current price.
But if there's one thing I wouldn't be doing now, it wouldn't be selling my Woolworths shares. Sure, I may not be buying at current prices, but given the strength of the company's brand, its virtual oligopoly with Coles, great management and decent dividend yield, this is one company I want in my portfolio for many years.
And while Woolworths has admitted that it has had issues with its Masters store rollout, these are likely to be more teething issues than a structural issue. Retail stores take time to mature and grow their profits – Mr Woolford doesn't seem to be taking that into account, and with Woolworths at the helm, I'm fairly confident that Masters will be a winner for the company in the long-term.
Foolish takeaway
Foolish investors would be wise to ignore the calls of investment bank analysts. Most are only looking at the short-term performance of stocks, and treat them as a piece of paper, rather than a share in a business. Woolworths is one of the highest quality stocks on the ASX, and is likely to remain one for many, many years.
