Woolworths spending big, but still lagging Coles: BAML

Woolworths has invested more than double the sum spent by Coles yet its stock price is underperforming that of its rival.

Woolworths stock price is failing to match that of Coles. Picture: Paul Jeffers

Woolworths has invested more than double the $3.3 billion spent by Coles yet its stock price has massively underperformed that of its big supermarket rival, say analysts.

Woolworths’ stock price is up 22 per cent against the market, compared to 45 per cent by Coles, according to a note from BAML analyst David Errington, which slams Woolworths management for gold plating investment without the returns.

Over the last four years Woolworths has spent $7.7bn on capital expenditure against $3.3bn from Coles, with capital expenditure to depreciation running at two times against 1.2 times for Coles.

Mr Errington says the returns to Woolworths don’t appear to reflect that spending imbalance.

Four years ago Woolworths cut earnings before interest and tax by $1.2bn to $2.6bn, but since then it has increased by three per cent a year.

Both retailers had strong finishes to the 2020 financial year due to the COVID-19 shutdowns but in the year Woolworths also spent up on supply chain, IT and COVID safety measures.

Mr Errington said Woolworths, based on past spending, should grow food earnings by $250m in the 2021 year to $2.5bn.