Woolworths Share Price Dips after Decision to Close 30 Big W Stores

This week Woolworths Group Ltd [ASX:WOW] announced it would be closing around 30 Big W stores across Australia, blaming tough competition in the retail industry. The Group also announced a $1.7 billion off-market buy-back.

At the time of writing, the Woolworths share price is trading a little lower at $30.76.

As reported by the ABC, the slashing of around 16% of Big W stores is costing Woolies approximately $370 million and is set to negatively impact this year’s profit results.

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Woolworths loses profit to boost profit

Woolworths is set to focus on improving the profitability of the remaining Big W stores.

In an analyst briefing on Monday, the company’s chief executive, Brad Banducci, said selling the Big W brand wasn’t off the table and that Woolworths was ‘open to alternatives’. Mr Banducci stated:

As foreshadowed at our half year 2019 results, while the recovery in trading for Big W is encouraging and there remains further opportunity for improvement, the speed of conversion to earnings improvement is taking longer than planned.

This decision will lead to a more robust and sustainable store and distribution centre network that better reflects the rapidly changing retail environment.

And in this environment, the biggest uncertainty comes for Big W employees. In the past, Woolworths redeployed the affected workers when the company collapsed its Masters Hardware chain.

Big W has 18,000 staff between Australia, Hong Kong and Bangladesh, and stores will operate as normal until the closure is decided — in relation to the terms of the lease agreements with landlords. Mr Banducci further stated:

We understand the impact that the store closures will have on our team and will endeavour to provide affected team members with alternative employment options within the Woolworths Group where possible.’

The planned closures will not target regional areas.

Mr Banducci could not give a number on the amount of people that would be affected, but said each would be dealt with on a ‘case by case basis’.

So far, as reported by the ABC, the Monarto distribution centre in South Australia will shut at the end of its lease in 2021, followed by the Warwick Big W in Queensland, closing in 2023.

Woolworths share price 2019 outlook

In other news, Woolworths revealed its completion of sales of its UK EG group service stations, giving returns of $1.7 billion in a share buyback to investors.

Eligible shareholders will need to go through an off market tender process, opening Tuesday, 16 April 2019.

Investors shouldn’t fret too much over the impending Big W closures, as they will offer improvements in conversion to Woolworths earnings.

This, along with running a stronger and more sustainable store, may likely help Woolworths’ share price in the long run.

Regards,

Ryan Clarkson-Ledward,
For Money Morning

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Ryan Clarkson-Ledward is an Editor at Money Morning.

Ryan holds degrees in both communication and international business. He helps bring Money Morning readers the latest market updates, both locally and abroad. Ryan tackles all the issues investors need to know about that the mainstream media neglects.

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