Shift in Christmas week will hit Woolies’ earnings
In a trading guidance to investors yesterday, Woolworths warned that both earnings and headline earnings a share would slide as much as 20percent for the 26 weeks to the end of December - including the impact of accounting standards.
Woolworths said the shift in the trading weeks had resulted in the Christmas week, including Boxing Day - which was a significant trading day in Australia - falling into the first half of the current year, compared with the second half of the prior year.
“In South Africa, the constrained economic environment, exacerbated by the disruption to trade caused by power outages and unseasonal weather in parts of the country, contributed to slower December trade,” the company said.
Woolworths reported that fashion, beauty and home sales and comparable store sales had grown 2.2percent and 0.9percent after adjusting for the shift in trading weeks.
Food sales, however, demonstrated resilience, with an exceptional 8.1percent increase, and 7.8percent after adjusting for the shift in trading weeks.
Woolworths said that, in Australia, David Jones sales for the period were 0.5percent lower after adjusting for the shift of the Christmas week.
The company also announced that the disruption due to the upgrading of the flagship Elizabeth Street store - scheduled to be completed in March - had reduced, compared to the second half of last year, as additional floors had opened.
“Online sales grew by 61.8percent and now comprise 10.4percent of total sales,” the company said.
Asief Mohamed, the chief investment officer at Cape Town-based Aeon Investment Management, said the trading update was more than what the market expected.
“The food division, however, produced reasonable growth. Earnings per share is expected to decline by around 10percent. The South African consumer is also under stress.
“The retail sector has not had the benefit over the last couple of years from increasing number of social grant beneficiaries,” said Mohamed.
David Jones in Australia, which was acquired in 2014, has been undergoing structural change, with the company giving outgoing chief executive Ian Moir the task of turning the tide as consumers preferred online shopping to department stores.
The company announced earlier this month that Moir would step down, and it has appointed Roy Bagattini as his successor.
Lulama Qongqo, an investment analyst at Mergence Investment Managers, said the 62percent growth of Australia’s online sales failed to help David Jones, adding that the lower earnings were below the market consensus.
“The market was expecting the company to at least report a -3percent drop in earnings,” she said.
“People are going to revise their expectations for Woolworths’ full-year earnings down.”
Qongqo said the declining earnings guidance underscored the slow pace in the roll-out of the group strategy.
“The whole business’s lacklustre performance overshadowed their exceptional performance in food. Their food business is resilient. They were able to put through a bold price increase without losing volumes. I think that is impressive considering the current economic climate,” Qongqo said.
Woolworths fell 3.15percent on the JSE to close at R46.15 yesterday.