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Political uncertainty impacts Woolworths growth

Aug 24 2017 09:34
Lameez Omarjee

Woolworths. (Duncan Alfreds, News24)

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Last Updated: 01/01/0001 at 12:00. Prices are delayed by 15 minutes. Source: McGregor BFA

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Johannesburg – Difficult trading conditions in South Africa and Australia have impacted the growth of retailer Woolworths [JSE:WHL].

According to the retail group’s annual results for the financial year ended June 25 2017, bottom line growth was 25.2% to R5.4bn.

The retailer maintained the previous year’s dividend of 313c, after declaring a final dividend of 180c. But earnings took a knock, as headline earnings per share (Heps) declined 7.6% and adjusted diluted Heps fell 7.9%. Earnings per share, which included R1.7bn profit on the David Jones disposal of its Market Street property in Sydney, increased by 24.8%.

“Growth in the second half was impacted by increasingly difficult trading conditions in both South Africa, heightened in the second half of the year by political uncertainty, and in Australia, by weaker consumer confidence,” according to a report to investors.

Group sales grew 3% to R74.3bn. Operating profit declined 10.9% to R6.2bn as expenses were up 5%, store costs rose by 3.8% and other costs increased by 8.3%.

Woolworths expects market conditions to be constrained. The group will introduce structural changes to its operations in South Africa and Australia. “We expect our food and clothing businesses in both South Africa and Australia to continue to outperform their respective markets.”

The group’s food division outpaced the market with growth of 8.6%, compared to revenue growth of 4.6% previously. “Lower food inflation into the second half of the year saw the return of increasingly positive volume growth,” the group said.

Woolworths rolled out 11 new stores, which resulted in store costs increasing by 9.3%. The food division’s operating profit lifted by 8.3% to R1.9bn.

Sales of the clothing and general merchandise division increased by only 1.4%. “Despite the difficult trading conditions, we traded ahead of most other apparel retailers,” the group said. Adjusted operating profit declined by 6% to R2.1bn.

Woolworths is focused on building its fashion credibility with a segmented, brand-directed customer experience. The retailer is in the process of rolling out a new beauty offering which will bring international brands like Chanel and Estee Lauder to its stores for the first time.

During the period, David Jones sales increased by 1%, in Australian dollar terms.“Sales growth slowed in the second half, as consumer sentiment worsened,” the group said. But the share of the department store and speciality market had grown marginally. Adjusted operating profit declined by 25.3% to A$127m (R1.3bn).

Country Road Group sales increased by 5.1% in Australian dollar terms. The division showed an improvement in the second half of the year. The newly-acquired Politix business added 3.7% to growth. The performance reflects changes the group made to the business over the past 18 months. Adjusted operating profit increased by 1.0% to A$98m (R1bn).

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