Housekeeping forces Woolies to sacrifice dividends for growth
JOHANNESBURG – Woolworths (Woolies) again cut its dividend to shareholders in the half-year to December as it battles to turn its retail business around and recover from losses incurred by its Australian chain store, David Jones.
Woolies took a R7 billion write-down in early 2018 on David Jones and a spate of recent resignations at David Jones has rattled shareholders who are worried about the turnaround.
Woolies said its shareholders would receive 92 cents a share for the 26 weeks ended December, down 15.2 percent from 108.5c per share in the prior period.
In a surprise move, the JSE-listed retailer, which sells food and clothing, said it had cut the dividend at its struggling Australian subsidiary, which comprise David Jones and Country Road Group, by 15 percent for the second consecutive year and aimed to halve the debt by A$200 million (R2.01bn).
Woolworths group chief executive Ian Moir said yesterday that the cutting of the dividend was necessary to boost the balance sheet and had been welcomed by shareholders.
“Shareholders have told us that cutting the dividend is the right thing to do,” Moir said. He said the company’s food division had continued to deliver a strong performance.
“The food division has been taking market share from competitors over the last seven years. We are very happy with the good growth,” he said, adding that the group had put a lot of work into turning around the fortunes of David Jones.
Woolworths said its food business was the star performer in the period under review with a 6.3 percent increase in sales. Sales in the fashion, beauty and home division slipped by 2 percent. It said it was returning the Woolworths label to South Africa.
“The Woolworths label is back. South Africans like David Jones, but they love Woolworths. It is about giving people what they love,” he said.
In the 26 weeks to December 23, headline earnings a share declined 2.9 percent to 200.4c a share.
David Jones sales increased marginally by 1 percent with softer sales as Black Friday sales in late November were weaker than expected.
The company said growth from new stores largely offset the sales disruption from the Elizabeth Street store refurbishment.
Woolworths is spending millions to refurbish its flagship Elizabeth Street store in Sydney in an effort to improve the fortunes of David Jones.
Damon Buss, an analyst at Electus Fund Managers in Cape Town, said cutting the dividend signalled that the company expected an even worse operating environment in Australia.
“It indicates the business is under severe strain,” said Buss.
Buss said Woolies had failed to provide reasons for the recent resignations (David Jones MD and the two Australian board members), which were likely to destabilise the recovery of David Jones.
“That Woolworths are unwilling to disclose details for the resignations does not sit well with us,” Buss said.
Earlier this month, David Jones chief executive, David Thomas, became the third chief executive of the David Jones in four years to leave the group. Gail Kelly and businessperson Patrick Allaway also resigned as independent non-executive directors with immediate effect last month underscoring the instability of the executive team.
Ron Klipin, an investment analyst at Cratos Wealth, said Woolies was trying to conserve cash to address the David Jones debt cliff, adding that previously David Jones paid a dividend to Woolworths Holdings, however, it had not done so previously.
“David Jones has not been performing and cutting the dividend is the right thing to do,” he said.
Woolies' share price closed 2.91 percent lower at R43.05 on the JSE on Thursday.