Macroeconomics and Grocery Stores Industry

Topics: Inflation, Macroeconomics, Unemployment Pages: 5 (1361 words) Published: August 7, 2013
Company overview
Key information of the Woolworth
Woolworth (WOW) is an Australia corporation with more than 195,000 employers which operates business in grocery stores industry which was founded by Percy Christmas in 1924 (Woolworths, 2012). Its manages 3,000 stores which are located in New Zealand, Australia and India serving 28 million consumers for liquor, span food, petrol, home improvement, hotel and general merchandize (Woolworths, 2012). First, the company WOW operates supermarkets under several well known brands across different countries, including 1,033 supermarkets with the brands of Woolworths and Safeway operating in Australia and the brand of Countdown brand operating in New Zealand (Woolworths, 2012). Moreover, there are 11 supermarkets with the brand of Thomas Dux which are operated in Australia. Second, there are several liquor brands such as Woolworths/ Safeway, BWS and Dan Murphy’s which can serve different demand for various customers (Woolworths, 2012). Third, there are 599 canopies in Australia with 132 of them are co-brand with Caltex in the petrol retailing business (Woolworths, 2012). Fourth, there are 172 BIG W stores in the general merchandise business serving the every day’s needs of the customers. Then, the 294 premium hotels in the hotel division can provide the service of bars, accommodation, gaming, dining and venture hiring (Woolworths, 2012). Finally, there are 15 Masters Stores and 21 hardware stores in the home improvement department (Woolworths, 2012). Latest Events

Two Non-Executive Directors Retires: Woolworths announced at 25 July that two Non-Executive Directors who are Roderick Deane and John Astbury will effectively retire since 31 August. Deane and Astbury once managed human resource strategy, financial management and governance (Woolworths, 2013a). New Woolworths' brand store opens in Indooroopilly: the new store of Woolwoths’ brand opens at 23 July located in the redevelopment area in the Indooroopilly Shopping Center. The new store has more than 3,300 square meters offering fresh seafood, delicatessen and bakery (Woolworths, 2013b). Ccurrent position within the market

Table 1: the market position of the WOW (Yahoo Finance, 2013a)
As can be seen in Table 1, Woolworth ranks top 6 in return on equity and top 5 in PEG ratio. It implies that WOW performs well in the effective growth and cost reduction which gives it good return in the investment. Woolworth ranks quarterly in the market capitalization and middle in the P/E ratio and revenue & earning growth rate which implies that this company is in a stable maturely growth state. Macroeconomic factors

Figure 1: GDP growth in Australia (RBA, 2013a)

First, GDP reflects the consumption power of the people in the nation and it will affect their consumption on stores and influence the cash flows of WOW. As can be seen in Figure 1, the GDP growth is in a contraction in the recent year and it seems to be difficult to expand in the future a few years. Thus the undesirable GDP growth will reduce the revenue of the retailing industry and WOW will also suffers. Figure 2: the consumer price inflation in Australia (RBA, 2013a)

Second, the inflation (CPI) is also very important. As can be seen in Figure 2, the CPI is in the low level during recent years but it trends to go upward since 2012. The upward inflation will drive the investors to require higher return, while the price-elasticity of consumption goods is small which will increase the revenue if WOW increases the price, so the influence of inflation on the WOW will be smaller.

Figure 3: the interest rate in Australia (RBA, 2013b)

Then, interest rate is another vital factor since higher interest rate will decline the present value of the firm for certain future cash flows which will reduce the stock price. As can be seen in Figure 3, the interest rate in low in recent year but the short term rate trends to go down while the long term rate trends to go up....

References: RBA. (2013a). Australian GDP Growth and Inflation. Retrieved from http://www.rba.gov.au/chart-pack/au-gdp-growth.html
RBA
RBA. (2013c). Factors of Production and Labour Market. Retrieved from
http://www.rba.gov.au/chart-pack/factors-prod-labour-mkt.html
Woolworths. (2012). Annual Report 2012. Retrieved from http://www.woolworthslimited.com.au/page/Invest_In_Us/Reports/Reports/
Woolworths
Woolworths. (2013b). Woolworths ' brand new Indooroopilly store welcomes first customers. Retrieved from
http://www.woolworthslimited.com.au/page/The_Newsroom/Latest_News/Retirement_of_Non_-_Executive_Directors/
Yahoo Finance. (2013a). WOW.AX vs. Industry Leaders. Retrieved from http://finance.yahoo.com/q/in?s=WOW.AX+Industry
Yahoo Finance
Yahoo Finance. (2013c). Industry Statistics. Retrieved from
http://biz.yahoo.com/ic/734.html
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