Woolworths says its pricing strategy is paying off for its food business

Retailer Woolworths said Thursday that challenging economic and trading conditions in both South Africa and Australia continues to weigh on its financial results for the 53 weeks ended June 2019.

Despite reporting a 6.5% jump in revenue, and a 6.1% increase in turnover and concession sales, headline earnings per share declined to 342.9 cents per share, from 346.3 cents per share before, while adjusted headline earnings per share declined by 2.1%.

The group said it had written down the value of its Australian chain David Jones by A$437.4 million, reducing its valuation to approximately A$965.0 million. “The impairment reflects the economic headwinds and the accelerating structural changes affecting the Australian retail sector as well as the performance of the business, which has fallen short of expectations.”

It noted that the Australian economy has slowed to its weakest level since the global financial crisis in 2009, and “despite record low interest rates and strong job growth, consumer spending remained depressed by high levels of indebtedness, a cooling housing market, low wage growth, and rising non-discretionary costs”.

The group’s board declared a final gross cash dividend per share of 98.5 cents, representing a 24.5% decrease on the prior year’s 130.5 cents per share. This brings the total dividend for the year to 190.5 cents, a 20.3% decrease on the prior year’s total dividend of 239.0 cents per share.

In South Africa, Woolworths said a steady improvement in its fashion business was experienced throughout the second half of the year. Sales for the year increased by 5.8%, buoyed by an acceleration in the second half of 8.0%, with stronger performances in the second half from both the fashion and food businesses, it said.

The group said its online business grew by 28.7% – however, it still only contributes 1.0% to total sales.

Sales for Woolworths Fashion, Beauty and Home (FBH) increased by 1.5% for the year, with second half sales up 5.5%. Price movement for the year for fashion was 2.5%. Net retail space declined by 0.1%, with the focus on productivity and operating efficiencies in existing space, it said.

Expenses grew by 5.1%, while store costs increased by 3.5%, meaning that operating profit declined by 1.1% to R1 688 million.

Woolworths Food

For Woolworths Food, sales increased by 7.7% for the year, with second half growth of 9.0%, “driven by further investment in price, innovation and convenience, resulting in strong volume growth”. The group said that price movement was 1.8%, while net space grew by 2.0%.

Despite expenses rising by 7.5%, operating profit increased by 5.4% to R2 283 million, with an operating margin of 7.2%.

The Woolworths Financial Services book reflected positive year-on-year growth of 7.4%.

The group noted that it has 279 FBH stores, down from 282 in 2018, with 216 stores in South Africa (218 in 2018). The group says it expects to reduce its stores count locally by 2022.

Food stores however, are anticipated to grow to 363 in South Africa by 2022, from a current count of 340.

Looking ahead, Woolworths said that despite lower interest rates and muted inflation, consumer spending is expected to remain constrained in South Africa.

Price movement in H1 is expected to be 3.3% for food and 4.4% for FBH. It said that its food business is expected to continue to grow volumes and market share, while BH expected to continue to improve with better ranges and depth of product.

Woolworths Food Market Share

Read: Price war 2019: Woolworths vs Pick n Pay vs Checkers vs Spar

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Woolworths says its pricing strategy is paying off for its food business