Woolworths reports steep H1 profit slump

Following prolonged pressure in Australia.
Image: Reuters/Siphiwe Sibeko

JSE-listed Woolworths Holdings reported a significant slump in profit of 35.6% for the 26 week period ended December 26, 2021, noting that disruptive events such as prolonged lockdowns in Australia and various disruptions in South Africa contributed to the reported profit decline.

In a Sens statement released on Wednesday the group noted that its headlines earnings per share (Heps) for the period slid to 168.2 cents from 261.1 cents registered in the prior period, while adjusted diluted Heps dropped 16.3% to 163.2 cents.

David Jones saw a 9.2% decline in turnover and a 9% drop in concession sales for the period. Online sales did however increase by 44.2%, contributing 28.1% to total sales for the period.

Country Road Group also saw a decline in sales of 3.1% as well as a 3.2% drop in comparable stores sale for the period.

Woolworths reported a 1% drop in turnover to R39.2 billion, largely impacted by lost sales stemming from prolonged lockdowns in its Australia business. The group also reported a 22.4% rise in online sales, contributing 13.7% to the group’s total turnover and concession sales for the period.

“Trade was significantly impacted by government-imposed Covid-19 restrictions across the region, where we were unable to trade in stores representing 70% of our brick and-mortar sales for over three months during the period,” the group said.

Strong balance sheet

Despite seeing a drop in many of its key metrics, the group did report a sound balance sheet for the period, managing to obtain a strong net cash position and reduce debt significantly in the last year.

“We have traded our businesses well, notwithstanding the extended lockdowns in Australia, tightly managing inventory, controlling costs, and converting sales into cash,” the group’s CEO Roy Bagattini said in the statement.

“We have reduced our debt by a further R7 billion over the past year and have ended the period in a net cash position — the strongest balance sheet we have had since 2014,” he adds.

The group also announced that it will be resuming a dividend for the period of 80.5 cents after two years of withholding it.

“I’m very excited by our runway for profitable growth, and the opportunities we see to invest in our diverse businesses. We are on track to rebuild our financial credentials, drive long-term value creation, and restore our business to its rightful place in the hearts and minds of all our stakeholders,” Bagattini said.

Woolworths Food

Traditionally the most resilient and best performing segment, the group’s Food Business, has registered a slower 3.8% growth in turnover for the half year period and 5.8% in the last six weeks of the period.

More reassuring for the segment was the sharp spike in online sales of 55.8%, which contributed 3.1% to South African sales in the period.

In its results statement the group said the segment’s sales growth should be reviewed in the context of the high Covid-19 base, which it says benefitted from increased levels of home consumption.

Read: Growth in Woolies food division slows

In light of a highly competitive food space and the mounting pressure the Shoprite Group’s Checkers Sixty60 delivery system has placed on market players, Bagattini tells Moneyweb that the group is well aware that staying relevant in the convenience delivery space will be an important part of the group’s future growth.

“We may have, at the outset of the pandemic, been off to a slower start than we would like to have been but I am tremendously proud of what the teams have been able to do in building capability to service the online space,” he says.

He also notes that Woolworths is determined to play catchup by consolidating its online offerings – which consists of an online shop, click-and-collect and Woolies Dash – onto a single platform, to make it easier for its clientele.

“These three online components are in fact going to be integrated into one single app, which will make it a lot more seamless for the customer to shop us online,” Bagattini says.

Read: Shoprite shows double-digit sales growth, indicating market share gains

FBH business continues to struggle

The group’s Fashion, Beauty and Home segment grew turnover by 4.2% and concession sales by 4.7%. Woolworths says the segment’s lack of growth was partly affected by reduced foot traffic to its stores and underperformance in selected womenswear categories.

To turnaround this loss-making segment the group says it will focus on its core categories such as the denim, athleisure and kids and babies wardrobe items.

The group is also looking to introduce third-party brands in its home and beauty offerings and less prominently, in its clothing brands. This it says will help differentiate and enhance its customers’ shopping experience.

“We are also elevating our apparel credentials in a number of these ‘must win’ categories through the introduction of select global and national brands, like Guess.”

The group’s CEO also added that more focus will be placed on improving the performance of its womenswear brands, which involves paying more attention to design, planning and buying operations for the brand.

Read: Can Woolies turnaround its ailing clothing business?

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