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Woolworths pins its hopes on the Ramaphosa effect

The retailer foresees a rebound in consumer confidence and spending as a result of the new political transition.

Woolworths has pinned its recovery on SA’s new political leadership under President Cyril Ramaphosa as the retailer’s woes have prompted it to cut its interim dividend for the first time in eight years.

Ian Moir, Woolworths group CEO, said the South African retail environment was tough due to increasing political uncertainty, credit rating downgrades, high unemployment and low consumer confidence. These problems had worsened under the administration of former president Jacob Zuma.

Moir said Ramaphosa’s administration has changed the mood of South Africans, resulting in consumers being more confident about their future and financial well-being.

“That confidence will encourage consumers to spend more,” Moir told Moneyeb after Woolworths revealed its worst results since he was appointed as CEO in 2010.

“For the last few years, people have been feeling very down. And all of a sudden [with Ramaphosa being president] people are looking up.

“Cyril Ramaphosa plans to stamp down on corruption, be fiscally responsible and we are dealing with our big issues and forecasting growth. It’s incredibly positive for the country and for our customers.”

Woolworths CEO Ian Moir is confident in Cryil Ramaphosa’s ability to turn SA around. Picture: Elmond Jiyane/GCIS

Woolworths is in the throes of a retail storm in SA and Australia. Its problems overseas stem from its David Jones department chain business, which makes up a third of group turnover and more than 40% of trading profit.

Listen: David Jones drags Woolworths into net loss

Group turnover grew by 2.5% to R38.8 billion in the 26 weeks to December 2017 compared with last year, while adjusted profit before tax fell by 8.8% to R2.98 billion. Its headline earnings per share dropped by 15% to 206.3 cents while its interim dividend also declined by 18.4% to 108.5 cents.

In SA, Woolworths faced slower sales in its clothing division, specifically the underperformance of womenswear. Comparable store sales (excluding new stores opened) fell by 3.4% but sales volumes fell by 4.1% (excluding product inflation of 0.7%). Moir said the clothing underperformance was due to several “mistakes” as its offering for women aged 35 to 55 was “juvenile”.

“We got womenswear wrong in SA. The skirts were too short, the skirts were too cropped, dresses were too fitted and prints were wrong,” he said.

Read: Woolworths is still facing many battles

A bright spot for Woolworths is the food segment, which continues to be a mainstay for the group. Food sales grew by 9.4% while comparable sales grew by 5.3%. Excluding product inflation of 4.4%, sales volumes grew by 0.9%.

Wooloworths’ food sales in SA continue to carry the group. Picture: Moneyweb

The food performance even prompted Wayne McCurrie, the senior portfolio manager at Ashburton Investments, to quip that Woolworths “should stick to just food.”

McCurrie agreed with Moir saying that Woolworths might benefit from SA’s new political transition as further junk credit downgrades might be staved off and the Reserve Bank might cut interest rates in March given the much-improved inflation outlook.

Woolworths continues to be whipped in Australia.

David Jones, which was bought by Woolworths for R22 billion in 2014, saw its sales decline by 3.3%, lagging average department stores sales growth in Australia of 0.1% in December 2017. David Jones’ adjusted operating profit also declined by 37.7% to A$66 million (R604 million at the time of writing).

McCurrie said the poor David Jones performance underscores the problem of SA retailers burning their fingers with large offshore acquisitions. “Woolworths became brazen and thought it could easily replicate its success Australia. However, it’s a highly competitive market.”

David Jones sales have declined recently. Picture: Bloomberg News

David Jones recently took an impairment hit of R7 billion as it suffered from sluggish trading conditions in Australia as consumers are facing unemployment, low wage growth and high levels of household debt.

Woolworths plans to revive David Jones sales with a range of private label clothes designed by its Australia-based Country Road team, redesigning its online shopping platform and an A$200 million (R1.8 billion) refurbishment of its flagship Sydney store.

“We are still not out of the woods. We still have a long way to go,” said Moir.

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the “Ramaphosa effect” is a bubble, to date a Broadway theatre show, with a ANC fairy-tale scrip, and applause before each intermission. In the real world, till their is no policy changes on the table, to the opposite of the “freedom charter”, its business as usual,…ANC promises.

Easy to blame JZ for bad business decisions but the truth is DJ was a bad investment despite the consultants, advisors and bankers being involved. When the fund manager tells a clothing retailer they should stick to food…something is severely wrong.

JZ was the equivalent of 100 Nuclear Financial Bombs!

He should pay back the R60 Million he owes to SARS and go to JAIL.

Fund managers are not the ORACLES of the Financial world.

They do not have a crystal ball to predict the future, they try their best to make the best educated decisions possible with all possible models and AI available, but in the end they can also fail like everyone else.

Fund managers follow the Economy, they do not lead or change the Economy.

…yet they rake in FEES in line with being an Oracle.

Woolworths still remains an excellent company. A Very good brand.
Don’t stress, it will rebound soon.
Maybe right time to buy more shares, seeing that they trade at a discount compared to most retailers.

As much as I respect and enjoy listening to Wayne McCurrie (I watch him on most evenings on one of the Business TV shows), he is most certainly not always 100% accurate with his market interpretations.

Also, you needed a few miracles to survive with Mr.Zuma in power, the numbers of investors that lost money in the Zuma era are very high.

Most South African investors still have their fingers smoking due to the one and only Mr. Zuma.

It’s shockingly amazing how pointing out to politician/politics seem to be blindly accepted as a reasonable explanation for bad business decisions.

Simplistically (I hasten to add), who stopped going to David Jones (the cause of Woolies’s woes) because of Zuma?

To put it to you “simplistically”, 27% of South Africans are unemployed?

Many South Africans have either lost their jobs or tightened their belts because a near 0% economic growth (0.7%) while the rest of the world was growing and doing exceptionally very well (We lost that chance/run due to Mr. Zuma)

Plus the Rand was turning into a Zero.

All because of the corruption and blatant theft as reported in the media.

Mr. Zuma and his behaviour was deterrent to all international investors.

To put it you “matter of factly” 😉

1) Almost 0% percent of the “27% of South Africans are unemployed” would ever set foot in Woolies.
So, NO, the unemployed in no direct way would have influenced their results.

2) A majority of South Africans who lost jobs did so in 2007/8/9 which has nothing to do with Zuma.

3) Like all “commodity currency”, the Rand moves the same way the Aussie, Loonie (to a lesser degree), the Kiwi, the Ruble move. Those invested in those countries understand the dynamics of those countries’ currencies.

4) “Mr. Zuma and his behaviour was deterrent to all international investors.” So, wrong, it deserves not much of a response.

1) Almost 0% percent of the “27% of South Africans are unemployed” would ever set foot in Woolies.
So, NO, the unemployed in no direct way would have influenced their results.

FINANCES101 =>
Obviously not, if you have no money then you cannot shop anywhere???

2) A majority of South Africans who lost jobs did so in 2007/8/9 which has nothing to do with Zuma.

FINANCES101 =>
There were probably no job losses in that period seeing that we had the 2019 World Cup soccer coming our way, plus we had a very competent President Thabo Mbeki which enabled us to continue for the next 5 years.

3) Like all “commodity currency”, the Rand moves the same way the Aussie, Loonie (to a lesser degree), the Kiwi, the Ruble move. Those invested in those countries understand the dynamics of those countries’ currencies.

FINANCES101 =>
Obviously not, the currency is an indicator of investor confidence.
With Zuma, that was below 0%, the below freezing point.

4) “Mr. Zuma and his behaviour was deterrent to all international investors.” So, wrong, it deserves not much of a response.

FINANCES101 =>
Clearly not, if the whole country was marching and asking him to leave.

1) Perhaps I badly phrased it. What I meant was that those 27% unemployed are people who would not shop at Woolies. We both know, my claim, the “profile” of that 27%. So, in effect, whether employed or not the 27% would have almost no material effect on Woolies’ results.

2) I admit sources of the exact numbers of unemployment or job losses are hard to comeby, despite the existence of StatsSA. Nonetheless by year end 2009, trade union Solidarity was saying 770 000 jobs had been lost in the then previous 12 months. The exact numbers aside, as far I remember the years 2007/8/9 recorded the highest job losses in a very long time. So I don’t know where you get your numbers from.

3) It was during the “competent President Thabo Mbeki” when the Rand well to R13/$, a level it recovered from until 2014 thereabout. Dare I caution against “loose” association of Rand/Market/currency levels to politicians. Markets were supposed to fall if Trump won, he won, the markets fell just as suddenly recovered!! Apparently local markets are going up because of Cyril, well markets ware going to fall whilst him being still present/president.

4) It is not true that the whole/majority of the country was marching against him. True, a large number did not like him, but not for reasons (and almost certainly not investment related) that mainstream media claims. God willing we both are alive in about 8/9 years time, we will witness the same thing with Cyril as it happen to Zuma in terms of people “revolting” against him.

David Jones was a very bad business decision. Moir overpaid for a non performing asset. It wont rebound by a miracle next year.

Woolworth has got it wrong in all aspects except food. Compare Woolies with Uni Qlo and H&M and you will see poor clothing design and quality and high prices. There is a disconnet between what they are selling and what customers want. Woolies needs complete overhaul of designers, purchasers and better pricing.

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