Woolies' disappointing results hurt share price

By Dineo Faku Time of article published Nov 17, 2017

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JOHANNESBURG - Woolworths yesterday plunged 5percent as it posted lower than expected numbers for its David Jones and South African Woolworths Fashion, Beauty and Home division, previously called clothing and general merchandise, for the first 20 weeks of the 2018 financial year.

In South Africa, Woolworths Fashion, Beauty and Home sales strengthened 0.7percent, with price movement of 0.9percent. Sales in comparable stores declined 2.4percent.

“Trade was affected by the macro environment, which negatively impacted consumer sentiment and discretionary spend,” the company said.

David Jones sales declined 5.3percent and 5.2percent in comparable stores in Australian dollar terms.

Sales decline was attributed to the disruption caused by the refurbishments of the Bondi Junction Food Hall and the Elizabeth Street store, as well as from the implementation of the new inventory management system. It also said that concession brands had reduced tactical campaign activity in David Jones to reduce discounting.

Woolworths posted lower-than-expected numbers for its David Jones and South African Woolworths Fashion, Beauty and Home division. Photo: Reuters

Atiyyah Vawda, an analyst at Avior Capital Markets, said yesterday the trading update was below expectation.

“Figures from David Jones, Country Road and SA Clothing came in below market expectations. Investors were looking for evidence of success for the Food and Private Label strategies at David Jones. They have increased Politix locations within David Jones stores, which should help to increase private label penetration for David Jones. Furthermore, we believe that should the food offer achieve scale it will also increase the private label penetration percent,” she said.

However the food business in South Africa showed resilience.

Woolworths food sales in South Africa grew 9.3percent, ahead of the market, with price movement of 4.5percent and positive volume growth, the group said in a trading update yesterday.

Vawda said growth in the local food business was an indication of the group’s strong brand presence in South Africa.

“The recovery of volume growth in the food category shows the resilience of the target customers of Woolworths, which are typically higher LSM consumers. Woolworths has a superior cold chain which allows them to consistently deliver on quality. This keeps the customer satisfied and increases the brand equity of the company," Vawda said.

The trading update comes as 2017 was characterised by low growth and political and economic uncertainty in South Africa, and a discretionary retail sector under increasing pressure in Australia.

Group sales for the first 20 weeks of the 2018 financial year increased 2.6percent.


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