Woolworths Limited (ASX: WOW) has been through the wringer lately, and investors could be forgiven for wondering how they went from holding a stock that was billed as a blue chip to one as on the nose as a supermarket skip bin.
The problems plaguing Woolworths are well documented, but here are three events that could signal the worst is over.
A new CEO
Grant O'Brien was meant to be the man who led Woolworths' charge toward the fortress of Bunnings through his Masters strategy. He has taken responsibility for the failings of that business to date, and has announced his resignation.
Somewhat awkwardly though, his resignation has not resulted in his exit from Woolies' Bella Vista headquarters. Reports are that he will stay in the chair until sometime next year, which rightly has many investors irritated.
In the absence of clear air, Woolworths' strategy and share price will continue to drift. That is why the announcement of a new CEO will be a sign that problems can begin to be addressed, and that the "reset" button can be hit.
A new project
Woolworths' management have a bit of a habit of naming strategic initiatives with more flair than might be expected of a supermarket. Its complete overhaul of its supply chain during the late 90s which catapulted it into supermarket leadership in Australia was named Project Refresh. Its ill-fated strategy to try and starve Bunnings of profits was called Project Oxygen, while a more recent supply chain initiative is Project Mercury.
Ultimately, the biggest businesses can invest in protecting and expanding the competitive advantages that they possess. If Woolworths' management can successfully identify, research and implement a large strategic initiative along the lines of Project Refresh, the business will be well on the way back to being a true blue chip.
Clarity about Masters
To date, Masters has been a failure. That much is clear, since the chain has had to go through numerous managing directors and strategy shifts, while diverting more capital than was ever thought necessary from the overall group.
There are no shortage of options on the table for the loss-making business, from a complete exit to a total shift in the business model to high-end "finishing" with a focus on renovation rather than nuts and bolts hardware.
Any announcement clarifying the road ahead for Masters will be welcomed by the market, as the business has become too large a distraction to ignore.
Woolworths will be a buy again at some point: it is the largest consumer staples retailer in the country, with prime locations and an enviable supply chain. However, the business needs a catalyst to return to growth, and one or more of the events described above could provide it.
