The Woolworths Group Ltd (ASX: WOW) share price is up more than 2% in early trade after announcing a few pieces of news.
Woolworths was founded in 1924 by Percy Christmas, its first store was opened in Sydney’s Imperial Arcade. Woolworths is Australia’s largest supermarket business, it operates Woolworths supermarkets in Australia and Coundown in New Zealand. It also runs the retail department store Big W. With over 3,000 stores and more than 200,000 employees it’s one of Australia’s largest employers.
Why The Woolworths Share Price Is Higher
Woolworths has announced that it has completed the sale of its Petrol business.
The supermarket company has decided to return the proceeds to shareholders with a $1.7 billion off-market buy-back, with the offer period opening on 16 April 2019.
Woolworths Group Chairman Gordon Cairns said: “We remain focused on maximising shareholder value and as foreshadowed at our half year 2019 results, we will return the proceeds from the Woolworths Petrol sale to shareholders.”
The reason why the buy-back was chosen was because it will result in a significant franking credit release, which is in addition to the $1.4 billion of dividends already paid to shareholders through regular and special dividends.
The sale is likely to result in a gain on sale of approximately $1.1 million after tax.
Big W Review
After looking at its Big W store network, Woolworths has decided to close around 30 BIg W stores over the next three years as well as two distribution centres that will close at the end of their leases.
The cost of exiting these sites will result in an expense charge of around $270 million relating to lease and other store exist costs. The review also identified approximately $100 million of impairments to reflect the market conditions affecting Big W.
The majority of the $250 million of cash costs is expected in FY21 and FY22.
Management want to accelerate the recovery of Big W. The company said Big W’s comparable sales growth in the third quarter of FY19 was around 6%, but profit growth was slower than planned and it expects to report a loss before interest and tax (click here to learn what EBIT means) of $80 million to $100 million.
Is Woolworths a buy?
It is a shame about the store closures and the struggles of Big W, but the positives of the buy-back seem to have outweighed the negatives of the Big W news.
However, at the current share price I don’t think Woolworths reflects exciting value. It’s in a slow growth industry with growing competition from online competitors. Even Coles Group Limited (ASX: COL) has got in on the action with an agreement with Ocado.
I believe the ASX businesses in the free report below could be better long term investments.
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