Woolworths Limited's (ASX: WOW) share price has fallen today despite a gain in the S&P/ASX 200 (INDEXASX: XJO).
It's surprising that the blue-chip retailer has bucked the market trend considering the positive news story circulating in the Fairfax press today.
The report highlights that Woolworths is set to spend $1 billion overhauling its supply chain, which is expected to dramatically reduce transport costs and deliver productivity gains to the supermarket giant. A second leg of its plan is to better utilise its customer data – 'big data' is the catch-phrase of the day. The idea of 'big data' is to improve customer loyalty and increase its understanding of shopping habits.
What could it mean for shareholders?
Having reported a 5.9% increase in revenues and a 6.1% increase in profits (both before significant items) for financial year (FY) 2014, some analysts have questioned whether mid-single digit growth is the best that can be expected from Woolworths in the future.
This latest development however has the potential to reduce expenses and thereby expand profit margins for the group, which some analysts believe could send earnings growth into double digits in the coming years!
With the stock trading on a consensus FY 2016 price-to-earnings ratio of 15.9x, an upward revision in future earnings expectations could lead more investors to view Woolworths' shares as deserving of a 'buy' rating, which could in turn send the share price higher. That certainly would be music to the ears of current shareholders who have watched the share price fall 2.1% over the last 12 months.