The market slapped Woolworths shares lower as the retailer sliced the dividend to shareholders by nearly 30% in the wake of R6.93bn impairments. Picture: Nabeelah Shaikh
JOHANNESBURG - The market slapped Woolworths shares lower as the retailer sliced the dividend to shareholders by nearly 30percent in the wake of R6.93billion impairments in Australian department store chain David Jones, and as a result of its local fashion faux pas.

Woolworths cut its final dividend by 27.5percent to 130.5cents, taking its total dividend to 239c, a 23.6percent decline from the previous year's 313c. Chief executive Ian Moir said 2018 had been a difficult year for the group.

“Significant costs and disruption from transformation initiatives in David Jones and poor performance in our fashion business in South Africa have led to a result for the group that is disappointing. This was exacerbated by challenging economic and trading conditions in both markets,” he said.

The share price opened 6percent weaker on the JSE after Woolworths reported a 17.7percent decline in headline earnings per share to 346.3c a share for the year to end June 24, down from 420.9c last year, and lower than analysts' expectations.

The share price closed 1.84percent lower at R50.60 at the close of the JSE yesterday.

Woolworths reported impairments of A$712.5million (R7.48billion) in David Jones in the 26 weeks to end December.

The impairment in David Jones resulted in the group posting a loss of R3.55bn from a profit of R5.45bn the prior year.

The group had now reduced its cost base by A$25m across Australia, largely through restructuring in June.

Moir said the business experienced significant changes during the year, including the implementation of new merchandise and finance systems, re-platforming of its online systems, launch of the new food initiative, and the move of its head office from Sydney to Melbourne.

“After a difficult first half, sales have increased by 2.2 percent and by 2.7percent in comparable stores in the second half. We are seeing an improvement in David Jones and we are going to build on what we have achieved so far,” Moir said.

The group grew its turnover by 1.6percent to R75bn. In its five divisions, food was its star performer, growing by more than 8percent.

Ron Klipin, a senior analyst at Cratos Capital, said the results were significantly below expectations, showing the major impact of the downturn of the South African economy as well as a miscalculation of local customers’ fashion tastes.

“In addition, the turnaround in David Jones following a major restructuring exercise has thus far been a failure, having gone from bad to worse. Perhaps management were unable to see the challenges of turning around an embedded legacy-type department store operation in a highly competitive and disruptive operating environment,” Klipin said.

He added that South African business also faced a challenging time with fashion, mainly apparel, misreading their traditional core basic customer market where traditional quality and value went out the window. “Instead, they went for the young fashion-type market, which is not part of the company’s DNA,” Klipin said.

Renier de Bruyn, an investment analyst at Sanlam Private Wealth, said the decline in headline earnings came as a result of weaker trading profits in both the South African clothing business (-21percent) and David Jones (-49percent).

“SA clothing suffered as a result of a weak consumer, but also performed below peers as a result of poor fashion execution,” De Bruyn said.