Why Woolworths Limited has jumped 2% this morning

Woolworths Limited (ASX:WOW) has updated the market and investors appear to like what they've been told.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Shareholders in Australia's largest but embattled retailer Woolworths Limited (ASX: WOW) are enjoying some positive momentum in the share price today with the stock jumping around 2% by mid-morning after the company released an update to the market.

Despite today's gains, in the past 12 months Woolworths' share price has declined by over 20% which has meant this blue-chip has dramatically underperformed the 3% rise in the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO).

Here are the five key details from the company announcement which has influenced investor sentiment and encouraged buyers into the stock today:

CEO retirement: Mr Grant O'Brien, who has been with the group in a range of positions for 28 years, has announced that he believes it is in the best interest of the company for new leadership to oversee the strategic plans which are aimed at setting Woolworths back on a growth trajectory.

Trading Update: The group reaffirmed that it is on track to exceed its $500 million in stated cost savings over the next two years and that these savings are already being reinvested in lower prices, better service and an enhanced offering to customers. On a less positive note, food and liquor sales in the fourth quarter are tracking below expectations with sales registering a decline of 0.7%, compared with the prior corresponding period.

Outline of significant items: Last month Woolworths outlined its plans for the strategic overhaul of the group. The company has provided details around the costs of $270 million involved alongside 1,200 redundancies.

Update on earnings guidance: The group has downgraded its guidance for the current financial year from growth in net profit after tax before significant items of 1.8% to expectations now for a flat result year on year.

Other management changes: The Director of Group Retail Services Ms Penny Winn has also announced her intention to leave Woolworths later this year.

Buy, Hold, or Sell?

The decline in Woolworths' share price means the stock now trades on a much less demanding multiple than one-year ago and at a level more in line with what investors should be comfortable paying for a blue-chip stock.

If the new management team is able to at least maintain earnings at current levels then the share price might find support and now could be a reasonable entry point. If however the group is forced to continue to reduce its industry-leading margins and spend significant funds just to maintain its market position in the face of increased competition then arguably it would be best to continue avoiding the stock for the time being.

Motley Fool contributor Tim McArthur has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »