Woolies Results

Another company out with some good looking results. This time full year results from high-end retailer Woolworths. I don't think “Woolies” needs an introduction so let's delve straight into the numbers. Turnover was up 9.4% whilst headline earnings per share grew 30.6%. Starting to notice a trend here? Companies have restructured and are better for it long term. These earnings equated to 215c per share with a final dividend of 93c being distributed. This made the overall distribution 143.5c and a yield of 4.3%.

The company trades on a historic PE of 15.3 which actually looks quite cheap compared to some of the other retailers. I guess this also has to do with the big growth in earnings we've just seen as the company grows into its valuation. Within the divisions, clothing managed to grow sales by 10.6%. Still maintaining that great turnaround story in this division. Good marketing and great clothing selections. Country Road only showed a 1.2% increase but that was because of a bad performance in Australia. In SA they grew sales by 24%. General merchandise decreased by 2.7% but that is because they decided to lose the cellular handset business. Without the change, merchandise sales increased by 5.2%. Food sales were up 10.7% outperforming the market which grew 4.1%. The financial services division compromising that joint venture with ABSA also showed good growth, growing their book by 4.8%.

What does this tell us? Woolworths is a high-end retailer in South Africa so does this mean that the rich are getting richer or that more people are entering a higher income bracket? It's probably both but more a result of the latter. People don't particularly eat more when they earn more. Beating the food market by 6.6% is big. There are definitely more clients. The outlook is similar to the rest, tough conditions but well positioned to face these challenges.

Investment case against Woolworths. If a double dip hits, Woolworths will really struggle because people will have to buy down. Groceries are essentials but buying quality is not and the likes of a Shoprite will steal Woolies' customers. South African Government economic policies hampering economic growth also poses a threat.



Investment case for Woolworths. I'm in the camp that does not believe a double dip will happen. I also believe that as the South African economy grows our middle class will start expanding. People aspire to shop at Woolworths and that is why, as the economy does grow, they are stealing market share. They also play on themes that attract the middle class. A lifestyle based on health, environmental awareness and quality. They have turned around their clothing business using a system whereby there food customers have to walk through the clothing section, very successfully. They are also expanding into Africa, mainly with their clothing division, which offers further growth potential. At these valuations and a great dividend yield, I'd definitely be buying.