A SURGE in online sales failed to lift up Woolworths’ interim earnings per share, which declined 49 percent to 167.9 cents for the interim period to December on the back of cost pressures, elevated food inflation, supply chain disruptions and Covid-19 disturbances in its markets.
Despite this its share price rose 5.39 percent to R54.33 in late afternoon trade, up nearly 12 percent in three years.
The retailer said unrest in South Africa in July and Covid-19 restrictions in Australia had disturbed sales volumes.
Woolworths chief executive, Roy Bagattini, has subsequently told Business Report that he expects food inflation and other cost pressures to remain elevated in the next six months.
“Food inflation has had an impact remained around 4 percent and this is something that is coming from cost pressures associated with moving products from supply to final distribution point,” Bagattini said by phone yesterday.
“We are expecting this to persist for the next six months.”
In South Africa, trading conditions earlier in the reporting period were impacted by the ongoing effects of Covid-19, the civil unrest in July, power outages and international supply chain disruptions and supplier delays, the company said. International travel restrictions during the key festive season affected inbound tourism and consumption to some degree, the group added.
The Australia and New Zealand business was also “significantly impacted by government-imposed Covid restrictions across the region” and the company was “unable to trade in stores representing 70 percent of our brick-and-mortar sales for over three months” during the 26-week period to December 26.
As a result of these headwinds, Woolworths’s turnover and concession sales for the period decreased by 2.1 percent to R42.1 billion compared to the previous contrasting period. Profit before tax for the period under review also took a 36.9 percent knock to R2.3bn, with headline earnings per share falling by 36.5 percent to 168.2 cents.
Online sales were, however, stronger for the period and Bagattini said this formulated a key strategy for the group, which was also reducing shop space to manage costs. Online sales across the group surged by 22.4 percent, with digital sales contributing 13.7 percent to group turnover.
“Our online penetration is the highest of all retailers in South Africa and online shopping is important for our future. This is an area where we have been investing in for quite a long time,” added Bagattini.
In the fashion, beauty and home division, online sales lifted 19.2 percent while there was also some respite from resurgent Black Friday and festive season sales for the group’s South Africa operations. Expenses for the food grocery business grew by 6.3 percent “due to the ongoing investment in online and digital capabilities and higher energy” costs.
On a positive note Bagattini said the retailer had reduced its debt by a further R7bn over the past year and had ended the period in a net cash position, “the strongest balance sheet we have had since 2014”.
Net cash was now at R0.3bn, excluding lease liabilities, from net borrowings of R6.8bn in 2020.
Woolworths has, however, declared an interim dividend of 80.5 cents per share from its reserves for the 26 weeks period ended 26 December 2021. Woolworths also received a special dividend amounting to R1bn from David Jones operating in its Australia division.
This after Woolworths, which acquired David Jones for $2.1 billion (R32bn) in 2014, resisted pressure from investors to sell the troubled department chain store after a long battle to turn the loss-making business around.
“Having successfully progressed our capital restructuring in Australia, and as a result of our ongoing cash generation initiatives, David Jones ended the period with a net cash position of A$347 million.
“Given the level of excess cash in this business, the Board of David Jones therefore declared a special dividend to Woolworths which will, in the interim, be utilised to reduce debt in South Africa,” said the company.
Woolworths is increasingly under pressure from rival Shoprite, which is threatening to eat its lunch.
Shoprite, the owner of Checkers and U-Save, last month flagged that it expected its interim headline earnings per share to increase between 20.5 percent and 26.5 percent to between 501.8c and 526.8c. lt expected to release its interim results for the six months ended January 2, 2022 on March 8.
BUSINESS REPORT ONLINE