New Woolworths CEO Roy Enzo Bagattini has his work cut out for him.
The group posted a downbeat set of results on Thursday with a double-digit slide in overall profit for its half-year to December, which saw its share price close almost 4.5% down on the day.
Adjusted profit before tax fell by 12.3% to R2.4 billion for the 26 weeks to December 29, excluding the impact of IFRS accounting changes. The decline in profit saw the group cutting its half-year dividend by 3.3% to 89c, while headline earnings per share declined 10.1% to 180.2 cents per share (excluding the impact of IFRS).
The results release comes just days after Bagattini took over the hot seat from Ian Moir. Bagattini jetted into Cape Town on Monday from the US and on Thursday had to face investors and retail analysts at the group’s interim results presentation at Century City.
Moir, however, was by Bagattini’s side at the event and made his last results presentation as Group CEO after ten years at the helm. For the interim, Moir will be staying on at Woolworths as acting CEO of its David Jones Australian business.
While Woolworths warned the market in a trading update in January of a fall in peak November and December season sales, results announcement on Thursday presented a dim full-year outlook, with headwinds expected in both its South African home market and in Australia.
In addition to consumers remaining under pressure from a weak economy and “continued power outages” in South Africa, Woolworths warned of sourcing risks linked to the Coronavirus outbreak in China.
“The Coronavirus is significantly impacting tourism, footfall and sales in Australia. A further impact on sourcing is also expected across the group. The group is currently actively considering ways to mitigate the risks associated with the Coronavirus,” it noted.
Meanwhile it said that in Australia, consumer spending is likely to be muted in the short-term due to stagnant wage growth and the impact of the bushfires. “The heightened levels of competition and promotional activity is expected to continue,” it added.
With operating profit for the interim period decreasing by 8.9% to R834 million within Woolworths’ Fashion, Beauty and Home business, the group said that it will focus on improving performance through better pricing and ranges, particularly in womenswear.
Black Friday sales was “disappointing” due to “under-participation”, according to the group. “Womenswear underperformed as a result of some product failure, a lack of newness in summer and higher price points, which also impacted sales and volumes.
“The constrained economic environment, exacerbated by the disruption to trade caused by power outages, unseasonal weather in parts of the country and an underperformance in clothing led to a slower second quarter,” it added.
The star performer for Woolworths was its food division yet again, with operating profit increasing by 8% to R1 157 million, for the interim period. Woolworths said food is expected to continue to trade ahead of the market.
At the David Jones business in Australia, the group anticipates benefiting from the completion of its Elizabeth Street store refurbishment, with trade normalising.
Speaking briefly to Moneyweb, Bagattini said he would spend the next few months evaluating and immersing himself in the business, to get a clearer perspective of Woolworths’ challenges and opportunities.
“Obviously, David Jones is not just topical but there are challenges there…. However, I believe that disruption in that business will set it on the right path. I will also be looking to really immerse myself in the core South African business,” he said.
“It is interesting times for Woolworths, but we have to focus on the things we can control to ensure the group is ahead of its competitors….” Bagattini said.
“The group is really iconic and is made up of powerful brands. Clearly there are parts that are working well and some parts that are below where it should be. I will initially primarily focus on two to three big areas, for example getting David Jones right and on the SA fashion business,” he noted
Listen: Independent analyst Chris Gilmour discusses Woolworths’ and Truworths’ fall in profits, with Nompu Siziba