Woolworths Group (ASX:WOW): A Hidden Gem in EPS Recovery and Dividend Resilience

The Woolworths Group (ASX:WOW) has faced turbulence in recent years, with its share price lagging behind peers despite a resilient dividend record and signs of earnings stabilization. As the company prepares to report FY2025 results in August 2025, now could be a pivotal moment for investors to capitalize on an undervalued retail giant. Let's dissect the data to uncover why this underperforming stock might be primed for a rebound.

The EPS Narrative: A Rocky Road to Recovery

Woolworths' earnings per share (EPS) trajectory since FY2020 reveals a pattern of resilience amid volatility. After hitting a peak of AUD1.27 in FY2022, the EPS dipped to a reported 508.3 cents in FY2023—still a record high due to strategic asset sales and operational improvements. However, FY2024's first-half loss of AUD0.64 raised concerns, only to be offset by a strong second-half rebound. The FY2024 full-year EPS of AUD0.089 exceeded analyst expectations, signaling a turning point.

The recent AUD1.5B one-off loss in FY2025 complicates the picture, but this appears to be a temporary drag. Excluding such charges, the underlying EPS trend suggests stabilization. Investors should focus on FY2025's post-August results, which could reveal a return to growth.

Dividend Resilience: A Lifeline for Investors

While EPS has fluctuated, Woolworths has maintained its dividend discipline. The final dividend of AUD0.97 in FY2024 marked a 36.4% increase from FY2023, reflecting confidence in cash flow. Even during FY2024's challenging first half, the company prioritized shareholder returns, including a special dividend. This contrasts sharply with peers that cut dividends during downturns.

The dividend payout ratio remains sustainable, supported by AU$108M net income in FY2024 and a focus on capital allocation. With a 3.5% trailing yield as of May 2025, Woolworths offers income investors a rare combination of growth potential and stability.

Strategic Leverage: Why the Turnaround is Real

Woolworths' recovery isn't accidental. Key initiatives are driving long-term value:
- Digital Transformation: AI adoption and WooliesX's grocery delivery platform are enhancing customer engagement and margins.
- Cost Discipline: FY2024's rebound was partly fueled by cost-cutting, a trend likely to continue.
- Strategic Acquisitions: The Petspiration Group acquisition expands its premium product portfolio, tapping into rising pet ownership trends.

The sale of David Jones in FY2023 also freed capital for core businesses, with R7.7B in shareholder value unlocked. This streamlined structure positions Woolworths to outperform in a consolidating retail sector.

Risks: Navigating the Storm

The AUD1.5B one-off loss in FY2025's first half—likely tied to restructuring or asset writedowns—remains a concern. Additionally, Australia's slow GDP growth and inflation pressures could delay a full earnings rebound. However, these are short-term headwinds, not existential threats.

Why Act Now?

• Valuation: At a P/E of 12.5x (FY2024) versus its 5-year average of 15x, Woolworths is undervalued.
• Catalyst: The August 2025 earnings report could surprise positively, especially if FY2025's second-half performance mirrors FY2024's recovery.
• Dividend Floor: Even if earnings remain flat, the AUD0.97 dividend creates a safety net for investors.

Conclusion: A Buy Before the Turnaround

Woolworths' share price has been overshadowed by short-term noise, but its strong dividend history, strategic execution, and stabilizing EPS paint a compelling picture of a company poised for recovery. With a valuation discount and an upcoming earnings catalyst, now is the time to position for a rebound.

Act now—before the market catches up.

Risks remain, but the reward-to-risk ratio favors bold investors. Monitor the August earnings closely for confirmation.