Woolworths’s half-year earnings plunge despite resilience to SA headwinds

Retailer Woolworths’s resilience against plummeting economic conditions in South Africa helped its revenues for the interim period to end December 2023. Photo: Supplied

Retailer Woolworths’s resilience against plummeting economic conditions in South Africa helped its revenues for the interim period to end December 2023. Photo: Supplied

Published Feb 29, 2024

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Retailer Woolworths’s resilience against plummeting economic conditions in South Africa helped its revenues for the interim period to end December 2023, although its Australian and New Zealand operations suffered from depressed consumer sentiment as shopping trends shift away from spending on goods and services.

Woolworths’s turnover and concession sales for the half-year quickened by 5.4% to R38.1 billion, it reported yesterday. Shares in Woolworths fell 7.54% in afternoon trade on the JSE yesterday to R61.95.

However, profits before tax were 14.2% softer, with the grocer’s headline earnings per share falling by 7.5% to R2.33 per share.

The company faced a “challenging macro environment and a high prior-year base” for the period under review. These were exacerbated by energy and logistics crises that continued to “to impact both business and consumer” confidence.

Woolworths grew its available space by 3.3% compared to the previous period, while online sales surged by 46.6%. The company’s on-demand shopping platform, Dash, contributed 5.1% of South African sales.

Woolworths CEO Roy Bagattini said: “Our results have again highlighted the benefit of our diversified group. I firmly believe that we have proven ourselves to be a resilient organisation, focused on formulating clear strategies and executing against them.”

Sales in the group’s beauty and home category were, however, impacted by poor availability due in part to the late arrival of various summer ranges arising from congestion at the ports. Several other South African companies blame Transnet for port inefficiencies.

Although there was resilience in the performance of the South African market, Woolworths struggled in New Zealand and Australia, where trading conditions “deteriorated” further during the half-year period to December 2023.

Woolworths said consumer sentiment in Australia, where the company operates Country Road Group (CRG), had sunk to near-record lows, with household savings at their weakest in a long time.

“The retail industry has been disproportionately impacted by the shift in spending away from goods to services.”

Expenses for CRG increased by 6.4% after trading space also shot up. Given the impact of negative operational leverage arising from the softer top-line performance, adjusted operating profit for the Australia and New Zealand operations under CRG decreased by 46.1% to A$50.2 million (R626m), returning an operating profit margin of 8.5%, compared to 15% in the prior period.

Woolworths disposed of the struggling David Jones chain in Australia last year. It said the sale of David Jones had provided it with “firepower to accelerate growth initiatives across number of newer categories” and formats.

Despite exiting David Jones, Woolworths had retained the Bourke Street property in Melbourne, Australia, as an investment asset. Valued at R3bn, Woolworths recognised rental income of R113m in the current period from the property.

Growth in new accounts and credit card advances drove up the grocer’s Woolworths Financial Services to a year-on-year increase of 4.9% as at the end of December 2023. The division, however, had an annualised impairment rate for the six months of 6.3%, compared to 5.5% in the prior period.

Looking ahead, Woolworths is anticipating the remainder of the current financial year “to remain challenging”, although it expected inflation to ease gradually. “Interest rates across both geographies are likely to remain elevated, placing continued pressure on consumer disposable income. In South Africa, the ongoing energy crisis, port and infrastructure challenges are expected to further constrain economic activity,” the company said.

Net borrowings for Woolworths closed the period under review at R4.1bn, with the Australia business in a net cash position of A$44m. Woolworths has declared a dividend of R1.48 for the period, which is 6.6% softer on the prior year’s contrasting period.

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