Woolies Share Price Edges down as Remediation Bill Grows (ASX:WOW)

At time of writing, the share price of Woolworths Group Ltd [ASX:WOW] is down 0.23%, trading at $36.58.

We take a look at the most recent trading update, and why the WOW share price is down instead of up.

You can see the WOW share price is range-bound, and is struggling to break out from a tight range:

ASX WOW Share Price Chart - Woolies Share Price

Source: tradingview.com

After a strong run-up until the onset of the coronavirus, Woolies shares are struggling to push beyond a 12% range, which you can see above.

Their remediation bill grew by a further $90 million today, taking the total bill to $390 million.

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Positive trading update marred by underpayment, WOW share price barely budges

The announcement put out by the company included some highlights which in normal circumstances could have pushed the WOW share price higher.

These include:

  • $700–780 million invested in two new facilities including a fully-automated warehouse for NSW, and a semi-automated national distribution centre, which will replace two currently operating facilities in Sydney and Melbourne
  • Supermarket sales up 8.8% in June quarter
  • Big W sales up 27.8%
  • Forecasted Earnings Before Interest and Tax (EBIT) of $3.2–3.25 billion

On the final point, this EBIT is expected to be lower than last year’s EBIT of $3.3 billion —perhaps a dampener on the share price while the remediation bill takes the headlines.

As for remediation, the company is going through previous rosters and hours with a fine-toothed comb, according to the Australian Financial Review:

Woolworths’ original estimate that the remediation program for staff would cost about $300 million was revised up for the second time on Tuesday to $390 million, with Banducci revealing that examination of pay records in the group’s ALH pubs business had found yet another set of issues.

There’s no doubt Banducci has thrown his people into getting right to the bottom of this problem. Woolworths is essentially conducting a shift-by-shift review for every present and former worker, painstakingly reconciling time sheets to the modern retail award to figure out what it owes.

It’s time-consuming, expensive and, frankly, embarrassing work for a company of this size. Banducci says the number of big companies with underpayment problems will likely climb, as they go on what he describes as the “long march back” through staff records.

Outlook for WOW share price

It’s hard to see the WOW share price breaking out of its range in the immediate future.

We’ve previously discussed how a shift in market sentiment surrounding dividend stocks (ie: the flight from big banks) was potentially behind the sharp rise in the WOW share price prior to the March slump.

Long term, the company expects its automated distribution centres to generate supply chain efficiencies.

However, the benefits of these automated distribution centres are not expected to flow through to the business until 2025.

So a long wait may be on the cards before you see another massive run up the charts, despite the strong numbers Woolies posted today.

You can see some forward estimates for Woolworth’s financial below courtesy of Market Screener:

ASX WOW - Woolworths Growth Estimates

Source: Market Screener

You can see the EBIT is estimated to pick up through to 2022, but only mild growth is expected.

Dividend payments are also expected to pick up.

As it stands, Woolies has a trailing dividend yield of just 2.81%.

If you are looking for our Editor Greg Canavan’s favourite dividend stocks, you can find those here.

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Regards,

Lachlann Tierney

For The Rum Rebellion


Lachlann Tierney is a writer for The Rum Rebellion and has been investing for nearly a decade. With a Masters of Science from the London School of Economics, he brings a sound understanding of global markets to his writing. Lachlann is interested in emerging technologies, energy solutions and helping people invest their money wisely. 


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