Spotlight on Woolworths

Woolworths (ASX: WOW) will report its full-year result on Wednesday, 28 August, and as Australia’s largest retailer and a high-quality company its results will once again be closely scrutinised. Investors already have some insight into what to expect on the 28th thanks to the release, at the end of July, of the retailer’s fourth-quarter sales figures.

With the figures showing that full-year sales from continuing operations (excluding petrol) increased by 5.6% and with the all-important Australian Food and Liquor division increasing by 4.7%, investors are expecting — after adjusting for the increase in losses from the roll-out of Masters Home Improvement stores — solid growth in underlying profit.

While management has already guided the market toward expectations for the full-year result, any weakness in the share price after the results release could offer investors an opportunity to buy in to a great Australian blue-chip company at a reasonable price.

Investors and shareholders preparing to ‘run the ruler’ over Woolies on the 28 should also consider taking the time to analyse major competitors for insights too.

Investors will also have the opportunity to dissect Wesfarmers’ (ASX: WES) results when it reports this Thursday. As the owner of the Coles, Target, Kmart and Liquor businesses, Wesfarmers’ results and outlook can provide important insights for Woolworths investors too.

As a competitor to Woolworths, Metcash (ASX: MTS) should also be scrutinised. The wholesale distributor and owner of the IGA and Cellarbrations retail banners reported a reasonable set of results at the end of July. While the company did manage to grow underlying profits by 6.9% to $280.7 million, the wholesaler only saw sales increase by 3.8%, which disappointed some observers and shows the competitive pressures faced by the third-place retailer in a sector dominated by Coles and Woolworths.

Foolish takeaway

Woolworths has a decent long-term outlook. While already a very large business, which makes high rates of growth difficult to achieve, population growth and harnessing and utilising its supply chain skills into other sectors such as Home Improvement via the Masters retail chain have the potential to provide shareholders with attractive future returns. With the share price hovering close to fair value the supermarket giant isn’t a bargain purchase, but given its high quality assets and secure, fully franked dividend yield of over 4% it could be worth considering.

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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