Smart management driving Woolworths’ growth

Woolworths (ASX: WOW) just changed my life.

I admit I was late to the party. I hadn’t tried Woolies’ delivery service yet, and was still spending valuable spare time shuffling hither and yon to keep my fridge full. Then I spotted an offer including a free first home delivery from — and I haven’t looked back since.

The experience has been a great reminder of what Woolworths does best, from its core supermarket and liquor operations to its ability to execute. For the most recent quarter, Woolies’ food and liquor sales grew 5.6% and like for like store sales increased 3.8% (while online sales from continuing operations grew 36%). Credit management’s smart decision to sharpen its focus on core operations to drive growth.

Plus an extra $50 million

What’s more, Woolies is about to pocket an extra $50 million on the sale of its Dick Smiths electronics store chain — even though the initial deal was completed back in November.

This is because, on selling Dick Smiths to Anchorage Capital for $20 million, Woolies included a provision that it could receive additional money if Anchorage Capital then re-sold the business. Today, Anchorage Capital is buying Woolies out of this provision with a payment thought to be about $50 million.

As The Australian reported today, “Anchorage’s willingness to buy Woolworths out of the agreement is likely to have been prompted by an upturn in the electronics sector,” which saw competitor JB Hi-Fi (ASX: JBH) raise its forecast in February.

Despite JB Hi-FI’s revised forecast, Woolies’ management was right to act on the declining profitability of Dicks Smiths and exit the consumer electronics retail business — one that remains subject to a number of secular threats, from cheap imports to currency fluctuations.

The bottom line for investors

When it comes to high quality businesses and management teams, Woolworths’ must be considered among Australia’s very best. Yet with shares trading for nearly 20 times earnings, investors may want to look elsewhere for greater return potential or greater dividend yields.

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Motley Fool contributor Catherine Baab-Muguira has no financial interest in any of the companies mentioned in this article. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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