According to an article in the Australian Financial Review (AFR) this morning, Woolworths Group Limited (ASX: WOW) is looking to save $50 million per year in efficiency gains across its stores.
The big question is, will these savings translate to more capital gains for Woolworths shareholders into 2020 and beyond?
What is Woolworths planning on doing?
According to this morning’s AFR article, Woolworths is “tweaking rosters and streamlining roles” in order to save $50 million per year across its stores.
As part of the company’s June 2019 operating model revamp, Woolworths is consolidating store management roles and streamlining its in-store operations to cut costs across the network.
This comes as Woolworths has begun to face competition from long-time supermarket rival Coles Group Ltd (ASX: COL) as well as international entrants including Aldi and Kaufland.
What does this mean for the Woolworths share price?
While $50 million in cost savings may seem like a big amount, the reality is that this amount is just a drop in the bucket for a large-cap company such as Woolworths.
In its latest full-year result in August, Woolworths posted a normalised net profit after tax (NPAT) from continuing operations of $1,752 million – 7.2% higher than FY18.
Both the group’s Australian and New Zealand food businesses saw earnings before interest and tax climber higher in FY19, despite a 9.7% decline in the company’s Endeavour Drinks segment.
Should you buy Woolworths shares?
The Woolworths share price is up 24.49% so far this year to be slightly ahead of the S&P/ASX 200 Index (INDEXASX: XJO) over the same period.
However, with a price-to-earnings ratio of 31.9x at the moment, I’m not sure that the Woolworths $36.29 per share valuation is justified.
The company’s 2.8% per annum dividend yield certainly sweetens the deal, but given the Woolworths share price remains near its 52-week high of $38.10 per share I’d be holding off buying Woolworths shares at the moment.
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Motley Fool contributor Kenneth Hall has no position in any of the stocks mentioned. 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 Scott Phillips.