No Quick Fix for Woolworths

Following Woolworths' third quarter sales result and subsequent credit rating downgrade it is clear the path to stabilisation will not be a short one. Sales have now fallen for four consecutive quarters, despite management's recent initiatives to address this. Yet despite investing in price and customer service, the overseas experience suggests it will be a long road back. Global comparisons suggest Woolworths was earning unsustainably high profits. This attracted competition, which has been the catalyst for a fall in operating margins from more than 7% last year to 5% in the most recent half year year. But, as seen in the UK and France, once margins begin to decline, the path to reliable profitability is not a smooth or short one. While management are taking the right steps in addressing recent earnings weakness, they now face the most competitive environment in the Australian supermarket industry for decades. Aldi is appealing to the frugal consumer, while Coles is going from strength to strength under Wesfarmers ownership. Any stabilisation in Woolworths’ margins is a ways away yet. Read full blogpost (VIEW LINK)