As Australia's largest retailer and the dominant force in the supermarket industry, there's no doubting that Woolworths Limited (ASX: WOW) is one of Australia's greatest companies.
Indeed, the company has a remarkable track record for revenue and earnings growth while it has also served as a reliable source of income thanks to its growing dividend payments. All these factors have been reflected in the remarkable returns from the company's shares over the last two decades, rewarding the thousands of investors smart enough to own them – and hold onto them – during that period.
Unfortunately, it has been a completely different story more recently. Through a series of disastrous managerial decisions, the company has not only pumped billions of dollars into its loss-making Masters Home Improvement chain, it has also lost sight of its dominance in the supermarket sector as a result of its relentless focus on growing profit margins.
At the same time, Coles – owned by Wesfarmers Ltd (ASX: WES) – and Aldi have stolen market share, with Woolworths now in desperate need for change.
Woolworths' struggles over the last year or so have had a huge impact on the group's overall returns. In fact, had you invested $10,000 in the retailer's shares five years ago (which would have bought you around 347 shares), you would be sitting on a total return of roughly 8.5%, based on my calculations (note that this includes dividends).
By comparison, $10,000 invested in Wesfarmers or an index fund tracking the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) would have yielded total returns of 39.7% and 39.1%, respectively. This can be seen on the chart below:
There are still clouds lingering over Woolworths' immediate future. The company is yet to decide on a new CEO to succeed the outgoing Grant O'Brien while its earnings will likely take another hit this year as a result of falling margins.
While this is certainly not good news for investors focused on the near-term, it could be a sign of a better future for longer term investors. It is vital that Woolworths cuts prices to attract customers back to its stores which should help bolster earnings in the coming years.
With the shares currently trading near a three-year low price, now could be a great time for long-term investors to get on board. As a welcome addition, the stock offers a 5.6% fully franked dividend yield, which is very compelling in this low-interest rate environment.
