Woolies results look good

Another sterling set of numbers were released by Woolworths this morning. This was telegraphed to us in January via a trading update so the market is not surprised. But nonetheless it's always exciting to delve into the numbers.

Group sales grew by 11.4% with the festive season really pulling through.
They also got their pricing right, managing to increase profits before tax by 26.8% and headline earnings per share by 34.6%. This was due to better tax rates and share buy-backs implemented by management. Food grew by 11.7% which was ahead of the market. Margins also increased to 25.2%. This means that customers are convinced that paying a premium for Woolworths food is worth it. You know, the whole argument that it lasts longer therefore you throw away less. Plus it is healthier apparently and health is a priority these days. They have created this image and the food more often than not, lives up to expectations. That is vital.

Clothing grew by 10.1%. In South Africa this increased by 11.2%. This includes the Country Road brand. In Australia the Country Road brand was not so successful contracting 2.4%. I'd suspect that the overall Country Road asset is still doing well. They brought it in from Australia and that is why they still operate it there. It is doing well here however which I suspect creates an overall net gain. That's purely an opinion though. Margins in the clothes division grew from 42.9% to 44.3%. Again the Woolworths premium is justified.


Valuations. They made 135.7c a share. Annualise that and we get 271c. The stock trades at 4195c a share and a forward PE of 15.5. Pretty much in line with the rest of the retailers and because of this good growth we see the earnings actually growing into what used to be an elevated share price. The dividend announcement has been delayed until April but these guys usually pay well so I'd expect a good cover.

Prospects. I'm starting to get irritated with companies who have, for the last 3 years been blowing the lights out yet are constantly bearish about the overall economy. Take Tiger brands update yesterday as an example. So many companies are saying that conditions are extremely tough yet they managed to grasp what is left of the weak consumer and grow exceptionally. I say its rubbish. The consumer is strong, stop blowing your own horn. Here is what Woolworths have to say about their prospects, falling right into the category I just mentioned above. "We believe that economic conditions in South Africa will remain constrained. However, trading for the first six weeks of the second half of the financial year has been positive, and we expect sales growth to be broadly in line with the first half."

There is no mention of African expansion but they are implementing this, mainly with the clothing. I like the theme of aspirational consumerism and management are getting their products very right in both the clothing and the food department. We still like Woolworths at these levels.