Reports in the Fairfax media of more job cutting and the departure of multiple senior executives at Woolworths Limited (ASX: WOW) suggest the fallout from the flat sales growth in the food and liquor division is still reverberating around the group.
A high turnover of senior management is often a giveaway that a business is underperforming and the recent management clear out at Coca-Cola Amatil Ltd (ASX: CCL) is another example of this phenomenon in action.
Often, senior management have to be replaced by outsiders who naturally take time to feel their way into a job and develop a worthwhile understanding of the business. At investment bank Macquarie Group Ltd (ASX: MQG) the retention of senior management is a virtual article of faith and central to the group's success over the years. Therefore, Woolworths' chopping and changing of senior management suggests it has a way to go on its turnaround ambitions.
Brad Banducci is the new managing director of food at Woolworths and the man charged with getting the group's sales growth back on track. The pricing strategy looks the first thing in need of revision as the world-leading margins prove a free lunch to low-cost competitors like Aldi, and Coles operated by Wesfarmers Ltd (ASX: WES).
Woolworths recently outlined its three-year growth plan that involves investing $500 million to deliver lower prices and a more attractive customer experience. Much of this investment is to be funded by cost savings in axing non-customer facing staff and creating supply chain efficiencies. Whether Woolworths will be able to reverse its slowing food and grocery sales growth remains to be seen.
Woolworths is also attempting to challenge the dominance of home improvement business Bunnings with its Masters hardware stores, but has found the going tough so far mainly due to Bunnings' entrenched dominance. The challenge to right the Masters business is another issue that moves buying Woolworths stock higher up the risk curve.
Given its growth outlook in my opinion Woolworths looks a hold and will likely trade sideways while the market awaits confirmation that the slowing sales have been decisively reversed. The 4.9% yield is attractive but analysts' consensus forecasts are for payouts to remain flat over the years ahead. If you're seeking income the very best stocks are those on an attractive valuation, with potential to grow their dividend payouts in the years ahead…
The Motley Fool has fingered a little known business with both these qualities and given the valuation it's worth knowing about….
