CAPE TOWN - Retail giant Woolworths share price closed 2.54% down as the group reported its first decline in annual profits in eight years.
Weak consumer confidence in both its home market and Australia hurt the retailer’s bottom line in the year to end June.
The group is now looking at successfully importing its successful South African high-end grocery concept to its Australia markets to unlock value in its business there.
The company blamed the decline in profits to political uncertainty in South Africa that has created a tough trading environment, while it said the sluggish consumer confidence in Australia had made an impact on the group’s performance.
Woolworths chief executive Ian Moir said the company would continue to implement more structural change in both South Africa and Australia as it expected the market conditions to remain challenging the group reduced its medium-term targets.
“We will continue to invest in various transformational initiatives (most notably in David Jones) and remain confident our strategies will deliver future-fit businesses capable of long-term profitable growth,” Moir said.
The group’s David Jones business in Australia experienced a torrid year as sales slowed as a result of a decline in consumer spending and due to a poorly received private label clothing range.
David Jones sales increased 1% in Australia in the period, its adjusted operating profit fell 25.3% to A$127m, and its adjusted profit before tax was 26.2% lower at A$124m.
Moir said the group had continued to drive the transformation of David Jones and had achieved significant milestones on key initiatives.
“This included the launch of a new customer relationship management programme, new merchandise and inventory management systems and the opening of a new David Jones Food concept in Bondi Junction, Sydney."
Among other strategies the company said it would implement to counter constrained consumer spending in Australia would be introducing a new tiered regional loyalty programme for David Jones and Country Road.
The group’s headline earnings per share (heps), which measures profits, declined 7.6% to 420.9c per share, while its adjusted diluted heps, which exclude the profit on disposal of assets as well as certain other once-off items, fell 7.9%.
The company’s earnings per share, which includes the A$172.6m profit made on the disposal a David Jones' property in Sydney, increased 24.8%.
Despite a decline in profits, the group’s food business held up in the face of increased competition and consumers tightening their belts, supported by lower food inflation in the second half of the year under review.
Woolworths Food saw sales increase 8.6%, while its retail space also grew a net 7.6% with the roll out of a 11 new stores in the period.
The unit’s adjusted operating profit increased 8.3% to R1.9bn.
The group’s clothing and general merchandise sales increased a modest 1.4%, while its adjusted operating profit declined 6% to R2.1bn.
Moir said the group had bolstered its beauty product range by bringing on board luxury brands, such as Chanel, Clinique, and Estée Lauder to attract new consumers.
The company’s other Australian business, Country Road's sales increased 5.1%, with its adjusted operating profit up just 1% to A$98m.
The company’s food and clothing unit have come under pressure in the competitive retail and food sector.
In South Africa, the group had to contend with fierce competition from rivals. Shoprite has set its sights on wealthier customers as the recession hits lower-income consumers. In Australia, it also faced stiff competition from H&M and Amazon.Earlier this year, professional services firm Ernst & Young found South Africa’s 12 largest retailers shrugged off the effect of a weak economy, constrained consumer spending and raked in R600bn in annual sales last year buoyed by a strong showing from groceries, speciality and clothing stores.
Woolworths' shares closed 2.54% lower at R64.35 on the JSE yesterday.