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Woolworths profit increases as food sales soar

Shares gained as much as 5.3%.

Woolworths, the South African food and clothing retailer which last year bought David Jones of Australia for $2 billion, said first-half profit climbed 9.3% as food sales grew faster than the market.

Net income at the seller of organic foods and international clothing brands such as Country Road rose to R1.65 billion ($140 million) in the six months through Dec. 28, the Cape Town-based company said in a statement on Thursday. That compared with R1.5 billion in the same period a year earlier. Sales gained 46% to R28.5 billion, including the David Jones purchase.

“In South Africa we expect the upper-income consumer to be relatively resilient,” Chief Executive Officer Ian Moir (pictured) said in a presentation in Cape Town. “The first six weeks of sales are strong in both South Africa and Australia.”

South African retailers struggled last year as unemployment of about 25%, prolonged strikes and high levels of personal debt contributed to a downturn in consumer spending. Woolworths was less affected than some competitors due to its focus on high-end customers, while the David Jones acquisition was seen by the company as a step toward the creation of a southern hemisphere retail giant.

Rising prices

Woolworths shares gained as much as 5.3%, the biggest intraday jump since December, and traded 4% higher at R85.66 as of 10:22 am in Johannesburg. The 10- member FTSE/JSE Africa General Retailers Index rose 1.7%. The company increased its half-year dividend to 96.5 cents a share, from 82 cents a year earlier.

Food sales gained 14% in the six months, while clothing revenue increased by 9.4%. The latter was held back by childrenswear and footwear, according to Moir, after the company raised prices “way too far”. That situation has been rectified, he said.

The integration of David Jones is on track and Woolworths will probably make at least A$160 million in savings from the tie-up within five years, Moir said. Sales at both David Jones and Country Road will outperform the Australian market, the company said.

©2015 Bloomberg News

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