Johannesburg - South African food and clothing retailer Woolworths said weaker consumer spending and economic growth would make trading conditions more difficult this year in both its Australian and domestic market.
“It’s going to get tougher in South Africa,” Chief Executive Officer Ian Moir said on a conference call from Cape Town on Thursday. “I think we will take market share, but we need to keep on top of costs.”
Read: Food sales feed Woolworths' earnings
South African retailers and consumer spending are under pressure as the country’s worst drought in more than a century pushes prices higher, with December food inflation climbing to 5.8 percent. Meanwhile a weakening rand against the dollar prompted the central bank to raise interest rates by half a percentage point last month, increasing repayment costs for those with loans or mortgages.
“Increasing interest rates in South Africa will add further pressure on the local consumer,” Woolworths said.
Woolworths shares, which rallied 30 percent in 2015, fell as much as 7.8 percent in Johannesburg, the biggest fall since December 11, and traded 6.7 percent lower at 87 rand as of 9.18am local time. The stock has dropped 12 percent this year, in line with the fall on the FTSE/JSE Africa General Retailers Index.
Diluted earnings per share excluding one time items rose 31 percent to 2.51 rand in the six months through December 27, the company that specialises in higher-end products such as organic foods said in a statement on Thursday. Sales gained 17 percent to 35.5 billion rand, or 12 percent excluding Australian department-store chain David Jones.
David Jones, bought for $2 billion in 2014, is performing “well ahead of expectations”, Moir said. The company’s total food-sales performance was better than the market average, he said, even as prices rose by 5.7 percent in the second half of last year.
Woolworths also benefits from the rand’s depreciation relative to the Australian dollar, a result of purchase of Sydney-based David Jones. The rand has weakened about 26 percent against the Australian currency during the past year.
The company will pay an interim dividend of R1.33, an increase of 38 percent.
BLOOMBERG