I wrote just the other day that bargain hunters should watch Woolworths Limited (ASX: WOW) closely, since the near future 'could see a few knives stuck into its share price'.
Today's Annual General Meeting could be the catalyst for that, with management likely to face a storm of criticism over falling share prices, performance that lags major competitor Coles, and executive remuneration that is not in line with the long-term interests of the company and shareholders.
Woolworths has delivered poorer comparable store sales growth compared to Coles – owned by Wesfarmers Ltd (ASX: WES) – for most of the past two years, despite being Australia's most dominant grocer by market share.
In addition the Masters Hardware business, designed to compete with Wesfarmers' Bunnings, has required nearly $3 billion worth of investment so far and some analysts are predicting that the company may not break even until 2019.
Furthermore the Australian Shareholders Association intends to vote against Woolworths' remuneration plan, feeling that a reduction in long-term incentive periods from five to three years is a backward step for the company.
The Shareholders Association spokesperson Allan Goldin also said that reductions in the earnings per share growth hurdle from 10%, to 8%, to 6% over the past three years reflects the degree to which the Masters Hardware investment is costing the company.
BT Investment Fund manager Crispin Murray even floated the idea that Woolworths may not have enough free cash this year to pay the dividend expected by shareholders, a situation that would be sure to knock the company's share price off a cliff.
Management will have the opportunity to answer these questions and more in detail at the AGM today, and investors should watch closely to see what happens.
I still believe that Woolworths is a good company to buy for the long term, and will be strongly considering an acquisition if prices drop below $30. However management's response to criticism and proposal for turning the company around will prove central to my investing thesis, and may be enough to turn me off entirely.
