There will be plenty of news for shareholders of Woolworths Limited (ASX: WOW) to process on Wednesday when the retail behemoth holds its Investor Day and releases its third quarter sales figures.
Here's what happened last time
The last time Woolworths provided an update to the market regarding its financials, it said that its first-half earnings had fallen by 3.1% compared to the prior corresponding period (pcp).
Once again, it was the company's embattled Masters Home Improvement chain weighing down on the group's overall performance with the loss from the division ballooning out to $103.2 million, compared to a $64.4 million loss in the pcp. Meanwhile, a $103.7 million provision for transformation costs of its BIG W business also dragged on overall earnings.
To make matters even worse, it downgraded its earnings guidance for the full year, stating that its net profit would be "towards the lower end of the current analyst NPAT forecast growth range", which sat between 1.8% and 6.6%.
Investors punished Woolworths' hat trick of bad news, selling the stock down by almost 10% and wiping roughly $4 billion from the company's market value on the day.
What to look for tomorrow
Right now, Woolworths is a battered and bruised company and, with the stock still hovering near a two-and-a-half-year low, it's clear investors are treading water cautiously ahead of tomorrow's announcements.
As was the case in February, Masters' performance will receive plenty of attention as investors weigh in on how much more capital is being pumped into the business. The more money Woolworths and its US partner, Lowe's, pump into the business, the more difficult it will be to cut their losses and exit the business altogether. Indeed, it is clear that Bunnings, owned by Wesfarmers Ltd (ASX: WES), is the dominant entity in the sector and that unfortunately doesn't look like changing anytime soon.
Investors are also anxious to see how much capital will be injected into the group's struggling supermarkets division. While the investment will certainly impact short-term earnings, Woolworths must take a long-term approach to strengthening the business in order to close the widening gap with Coles (also owned by Wesfarmers), and to hold the rampaging Aldi and Costo at bay.
A bigger-than-expected investment in the division could be punished by short-term traders, but long-term investors should view any further pullback in the share price as an excellent opportunity to buy.
An even better bet than Woolworths
Woolworths is an outstanding business and, at its current price, is definitely a stock worth your consideration. However, there's another ASX stock which I think could be an even greater buy than Woolworths right now!
