Woolies steady as she goes

It’s not easy finding growth opportunities when you dominate the landscape and there’s a revitalised competitor snapping at your heels.

Clearly Woolworths (WOW) in the past has been rattled, particularly when it took the plunge to venture into hardware. That hasn’t exactly been a winner as it revealed a month ago with the admission that all was not going according to plan and that the estimates were overly optimistic.

Its strategy now appears to be a war of attrition with Coles, digging in on the price front and resisting the urge to attempt to spend its way to success.

Its full year results, released this morning, have come in around expectations with an overall $2.35 billion, around 6.1% higher.

The loss on its Masters home improvement division blew out to $138.9 million, a 41% lift on a normalised basis on last year, but again that was hardly a shock.

Instead it was the crucial food and liquor division that captures the attention of investors. Despite price deflation of 2.9%, the core division lifted earnings 6.7% to $3.06 billion.

That continued competition with Wesfarmers owned Coles has driven the food deflation which ultimately will drive smaller competitors out of the market with Woolworths in particular aiming to keep more customers coming through the door and buying ever greater quantities of its goods.

Unlike Wesfarmers, which declared a special dividend only to spark a negative reaction to the impact on its balance sheet, Woolies has stuck to lifting its annual dividend.

The full year payout at $1.33 is a 5.6% lift on last year. But there is no denying that Woolworths remains expensive, trading now at around 18 times forward earnings with a yield around 4%.

Growth of between 4% and 7% is anticipated in the year ahead with spending to be geared towards refurbishment rather than property development.

That growth will come by driving the business harder. Not exactly exciting. But safe.