A SLIPPERY SLOPE WITH JSE:WHL


Investing & Money
piece written on the 13th February 2014 by  

Instead of putting money down on 7, 11, 13, 27, 31 and red I decided to rather place my chips on Woolworths as I felt calculating their ability against that of wind and dealer strength would result in a more calculated investment. So, a few months ago I rolled the dice and invested in Woolworths. Unfortunately, my lack of experience didn’t have me thinking that the JSE was performing incredibly strongly and that I would be investing at a high point in general, a great shame because the price has only tanked since then. In fact, my investment is down 26.29% compared to my shares in BHP which are up 25.12%, it’s quite a sad state of affairs. Sure, these are blue chippers and should be seen as long term investments, but it’s still sobering.

Woolworths logo
woolworths-share-jse

Woolworths have just announced their interim results for the half year mark, which ended on December 29, 2013. There are a lot of numbers, but here’s a summary thanks to various resources:

  • Sales up 16.2%
  • HEPS increased by 17.2% R1.92 per share.
  • EPS increased by 17% to R1,91 per share.
  • Profit Before tax increased by 21.1%
  • Headline Earnings increased by 18.5%
  • Adjusted HEPS of 12.9%, impacted by a foreign exchange loss of R54 million (R16 Million in the previous period)

Some more insight:

  • Clothing and Merchandise Sales up 9.7%
  • Clothing alone up 10.1%
  • Gross Profit Margin dropped 0.4% to 45.7% due to investment in entry price points as well as in-season promotions.
  • Food Sales up 15.3%
  • Other Operating costs grew by 16%

And then of course there’s the Country Road Group of which 88% is owned by Woolworths:

  • Sales up 27.5%
  • Gross Margin increased from 61.3% to 63%
  • 50% Increase in Profit Before tax to A$51 Million (R505,4 Million) (from A$34 Million)
  • As for the Country Road Group, the products sold are high-fashion, trendy, designer-ware. With a 63% gross margin, this is a very profitable business. .

What’s interesting here is that these results are pretty darn good, I wouldn’t mind those figures on my side but what I don’t quite understand is why the share price remains so dismal. Unfortunately, due to this we’ve seen the share price drop a further 4.25% today to close at R58.75 which is almost the lowest it’s traded at in the past year.

Your additional reading:

  • http://www.contrarianinvest.blogspot.com/ basheer

    Woolies is a great share. Its on my watchlist. But stay in cash for the time being buddy. Bargain prices are a coming then you strike. May I suggest a wonderful resource to listen to – eonderful program & great shares on the Roeffy report on Dstv bdtv channel 412 as well as Talking Technicals with Frans de Klerk.

  • http://www.imoddigital.com/ Christopher M

    I think there is going to be a lot of good opportunity as shares hit the lows, I hope to be ready and waiting to buy! Thank you for your suggested resources, I shall make sure that I watch them – PVR will be useful :)

  • http://www.fluence.co.za Arthur Charles Van Wyk

    Share price in many instances – especially that of publicly traded shares – are subject to more factors than just sales, earnings etc. Most companies are looked at as part of a global industry and judged accordingly as well. So if the industry globally are showing signs of decline it doesn’t matter what your HEPS is. Savvy investors will not get in on the action.

    50% of all investments are made based on past performance. The other 50% makes decisions based on knowledge and understanding. Buffett is one of those knowledge and understanding investors. He does not care how profitable a company is. If he does not understand it, he won’t invest.

  • http://www.fluence.co.za Arthur Charles Van Wyk

    That is a classic Kiyosaki move right there.

  • http://www.imoddigital.com/ Christopher M

    A 4% drop on the announcement of those financials is a shock, regardless of all the other factors that contribute to the share price. If the announcement happened and there was a tiny drop of <1% or stability, then that would be one thing, but a 4% is massive especially after a few months of down turn preceding it. Turning to the experts reveals that the market expected a far better response to the announcement of their financials.

    Ah Buffet, the master of value investing – what a true legend he is :)