How this $400 million program could lift the Woolworths share price

Buying Woolworths shares? You'll want to read this!

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Woolworths Group Ltd (ASX: WOW) share price is in the green today.

Shares in the S&P/ASX 200 Index (ASX: XJO) supermarket giant closed yesterday trading for $28.18. In late morning trade on Thursday, shares are swapping hands for $28.39 apiece, up 0.8%.

For some context, the ASX 200 is up 0.2% at this same time.

Despite today's welcome boost, the Woolworths share price has been trailing the benchmark, and the performance of chief rival Coles Group Ltd (ASX: COL), over the past 12 months.

As you can see in the chart below, Woolworths stock remains down just over 12% since this time last year. Meanwhile, the Coles share price (not shown) is up more than 14% over the full year, while the ASX 200 has gained a more tepid 1%.

With this underperformance in mind, management used the recent release of Woolworths' half-year results to highlight some core actions the company is taking to unlock its full potential.

Looking to the year ahead, Woolworths CEO Amanda Bardwell said:

Our priorities for 2025 are clear and we are already underway. We have an opportunity to further improve the shopping experience for our customers, we are taking steps to simplify our business and are committed to unlocking the full potential of the group.

And the company cited five key steps it is taking, which could support the Woolworths share price longer term. Those steps are:

  • Continue to improve retail fundamentals across value, range and availability
  • Simplify to increase impact for customers and deliver efficiencies. Support Office costs savings of around $400 million
  • Embed leadership and organisational changes
  • Successful opening and ramp up of New South Wales supply chain assets
  • Assess shape of group portfolio

Now, it's the second bullet point above, the $400 million in cost savings, that's grabbing brokers' attention.

A couple in a supermarket laugh as they discuss which fruits and vegetables to buy

Image source: Getty Images

Woolworths share price could benefit from reinvested savings

Morgan Stanley analyst Melinda Baxter forecasts that Woolies will plough back around half of the $400 million in cost savings into the business.

According to Baxter (quoted by The Australian Financial Review):

Woolworths is undecided as to the share of the cost out that will be reinvested in the business (notably in price) versus going to the bottom line. We factor into our estimates Woolworths reinvesting about 50% of the savings back into the business.

With Baxter noting this could boost earnings by around $150 million in the next financial year, the Woolworths share price could catch some tailwinds.

Woolworths' earnings before interest and tax for the half year came in at $1.45 billion, down 14% year on year.

Jarden's Ben Gilbert added that shareholders in the ASX 200 supermarket should benefit from Woolies banking "at least" $30 million in 2026.

"We estimate every 25% banked is worth greater than $1.20 per share to Woolworths," Gilbert said.

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Coles Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Consumer Staples & Discretionary Shares

Image of a shopping centre.
Consumer Staples & Discretionary Shares

A $500 million deal just dropped for Woolworths. Here's what investors need to know

Woolworths sells $500 million in shopping centres to unlock capital.

Read more »

A wine technician in overalls holds a glass of red wine up to the light and studies it.
52-Week Lows

Treasury Wine shares just tumbled to 14-year lows. Screaming bargain or falling knife?

Trading at 14-year lows, are Treasury Wine shares poised for a rebound?

Read more »

Ecstatic woman looking at her phone outside with her fist pumped.
Consumer Staples & Discretionary Shares

A rare buying opportunity for this ASX 200 stock as it rebounds from a historic low

Analysts are expecting big things from this beaten-down ASX 200 stock.

Read more »

One girl leapfrogs over her friend's back.
Growth Shares

This dirt cheap ASX retail stock is tipped to double in value

Better execution and easing pressures could spark a powerful rebound.

Read more »

Stressed shopper holding shopping bags.
Consumer Staples & Discretionary Shares

Which ASX retail stock could soar more than 100% if this broker is right?

A solid first half result has set this business up to win.

Read more »

A man on a phone call points his finger, indicating a halt in trading on the ASX share market.
Consumer Staples & Discretionary Shares

Trading halt, delayed results, and a capital raise: Why this ASX retail stock is under pressure

KMD shares fall after an earnings delay and equity raise announcement.

Read more »

Surfer riding a wave.
Consumer Staples & Discretionary Shares

Which ASX retail company just rejected a deal to buy its Rip Curl stores?

The board couldn't see any value in the proposal.

Read more »

Beautiful young couple enjoying in shopping, symbolising passive income.
Earnings Results

Guess which ASX 300 stock is jumping 17% on strong results

This stock is catching the eye on Tuesday with a strong gain.

Read more »