Woolies shares not Worthit!

Woolworths likes to use the tagline 'Well worth it' - but its shareholders may beg to differ...

Last Updated: 06 Nov 2012

The UK retailer Woolworths has decided to chop its dividend by nearly 70%, to a measly 0.6p per share, after recording a 3.2% drop in sales last year. Chairman Richard North said Woolies was seeking ‘an appropriate balance between providing a return to shareholders while preserving the financial flexibility necessary to support the plans and ongoing development of the business going forward’ – which we think is boardroom-speak for: ‘that’s all we could afford’.

As updates go, this one was pretty mixed. Profits were up by 30% to £28.3m, which suggests that Woolies’ plan to cut back on the sale of less profitable items like electrical items and computer games might actually be bearing fruit. On the other hand, its debt level has shot up from £113m to £246m, due to the cost of some recent acquisitions – and given the rising price of credit, that’s not an ideal situation to be in. In fact, paying the interest on this debt was a key reason for the dividend cut.

However CEO Trevor Bish-Jones, who’s been on a big cost-cutting drive as he tries to get the ailing company back into the black, sounded cautiously optimistic this morning. He admitted that the environment would ‘remain challenging’ and that they’d have to ‘continue to manage the business tightly’ (must be a relief to shareholders) – but he reckons that the improvements he’s made over the last year have left Woolie’s ‘well-placed to make continued progress’. Even if he does say so himself.

Of course it’s still hard going for Bish-Jones at the moment, just as it is for most of his counterparts elsewhere on the high street – particularly since the early arrival of Easter has distorted figures, making it almost impossible to judge progress against last year. Some argue that its ‘value’ offering (for which read: ‘cheap and cheerful’) will leave it well-positioned in a consumer spending slowdown – but on the other hand, the big winners so far seem to be John Lewis and Waitrose, which don’t exactly fall into that category. Perhaps it’s actually the value category that will feel the biggest squeeze.

That said, Bish-Jones reckons Woolies’ entry-level Worthit! range has been selling so well that it’s actually had trouble keeping the shelves stacked. Clearly customers couldn’t get enough of those £10 blenders and £7.99 fake plastic Christmas trees – but will they keep coming back for more throughout the year?

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