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Where to from here for the Woolworths Limited share price?

Credit: Woolworths

At the annual general meeting (AGM) for supermarket owner and operator Woolworths Limited (ASX: WOW) one year ago, the share price was trading above $30.

Skip forward to this year’s AGM (which was held this week) and the share price is wallowing around the $24 level.

That’s a decline of over 20% in 12 months which is certainly not as painful as the near 50% drop shareholders of grocery wholesaler and IGA-banner owner Metcash Limited (ASX: MTS) have had to endure, but its unpleasant none-the-less.

Despite the share price fall and negative news headlines, Woolworths remains a market leading retailer. For long-term investors, it’s times like these when quality blue chip stocks fall out-of-favour with the market that attractive opportunities can arise.

Here are three reasons to be positive on the long-term outlook for Woolworths’ share price…

  • The company has implemented a renewal strategy focussed on reinvigorating the Supermarkets business which represent 70% of the group’s profits. This will be actioned through a variety of measures including price decreases to be competitive, improved in-store service by increasing staff numbers and upgrading the look and feel of the stores.
  • A second priority highlighted by the Chairman, Mr Gordon Cairns is the underperforming Masters Home Improvement business. According to Mr Cairns, the opportunity remains “compelling” with “plenty of room for a strong number two.” Mr Cairns went on to acknowledge that the business cannot continue losing over $200 million per year but also noted that they had identified the business’ competitive advantage.
  • Finally, Big W is a third opportunity for the group. With the Big W business only making half the profit it was five years ago, Mr Cairns noted, “with good leadership in place, there is a clear path to improve returns and provide us with more options going forward.”

Over the past few years, investors have watched on as the team at Coles, owned by Wesfarmers Ltd (ASX: WES) have successfully turned around that underperforming supermarket business. Many will remember that Wesfarmers was criticised time and again for the acquisition of Coles but rarely is that accusation made today. Woolworths’ business may be damaged, but it’s not broken and there would appear to be plenty of scope for a turnaround here too.

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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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