Is the Woolworths share price finally on the mend?

Credit: James Arboghast

Woolworths Limited (ASX: WOW) has seen its share price plunge from a high of $34.71 to as low as $22.42 in the past 52-weeks and currently trades around $24.43.

We can’t blame the market for all of the price fall either. Since February 2015, Woolies share price has dropped more than 23%, while the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) is down nearly 10%.

The issues Woolworths faces have been well documented, from its supermarket fight with rival Coles – owned by Wesfarmers Ltd (ASX: WES), upstart Aldi and independents IGA, an unprofitable discount variety store in Big W and finally woes in its home improvement and hardware division, Masters.

You can also add to that uncertainty over management, with several high-profile executives leaving over the past year or so, and the resignation of CEO Grant O’Brien, who was due to leave the retailer any time after November 2015, after resigning in June 2015. Mr O’Brien may stay on until the new CEO has been found.

With Mr O’Brien still in the chair, Woolworths may have found it difficult to find solutions to some of the problems it faces, but they have at least made a final decision on the unprofitable Masters – which is to sell it off or close it down. Once Masters is out of the way, its annual losses of over $200 million will be a thing of the past. It should also give Woolworths’ management one less thing to worry about, and they can concentrate on the core supermarkets business, fixing Big W (or flogging it off as well) and an increased focus on the businesses profitable divisions like liquor and hotels.

Since the Masters’ announcement was released on January 18, Woolworths’ share price has jumped 7.8%, handsomely beating the wider market gain of 3%, which may show that as Woolworths solves an issue, investors become more upbeat about the company’s prospects.

The long-awaited announcement of a new CEO may also see the share price rise strongly, depending on his or her background.

The signs are there that Woolworths may be turning itself around, although it may still take a number of years before all the issues are ironed out.

Foolish takeaway

Earnings and the fully franked dividend are likely to be cut when Woolworths reports its first-half results later this month and there are real risks the share price could fall below $22. But the more important news is the company’s future and how it is going to address its myriad issues.

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Motley Fool writer/analyst Mike King owns shares in Woolworths and Wesfarmers. You can follow Mike on Twitter @TMFKinga

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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