Woolworths earnings tumble on lockdown constraints

Retailer Woolworths on Thursday (17 September) reported a 54.5% drop in adjusted profit before tax to R2.2 billion for the 52 weeks ended 28 June 2020, citing the impact of Covid-19 on its performance in the second half of the year.

Turnover declined 1.2% to R72.2 billion, while headline earnings per share was down 65.1% to 119.8 cents per share.

Total dividend per share declined 53.3% to 89 cents per share, from 190.5 cents per share.

Woolworths noted that first half adjusted profit before tax was 12.3% below the prior year, at R2.4 billion. “The onset of Covid-19 caused significant disruption to our businesses, resulting in store closures, reduced footfall, lost sales and margin dilution due to promotional and other initiatives to clear inventory.”

Group sales for the current year on a 52-week comparable basis were 0.1% lower compared to the pro forma prior year and declined by 1.1% in constant currency terms. The sales performance for H2 was significantly impacted by the temporary closure of the majority of the group’s non-food stores, coupled with the decline in foot traffic and resultant loss of trade, it said.

The easing of restrictions from the beginning of May 2020 in South Africa and Australia resulted in some recovery in the last nine weeks of the half, the group said.

Consequently, group turnover and concession sales declined by 4.0% in H2. “Loss of trade was partially offset by significant growth in and contribution from online sales across all businesses during and post the lockdown.”

Woolworths Food sales peaked in March and April, with above-market growth continuing into May and June.

Turnover and concession sales for Woolworths Food grew by 13.3% in the second half, with full year growth at 10.7%.

“This was achieved notwithstanding the constrained environment, restrictions on trade of our hot food counters, wine alcoves and WCafe business, and the intermittent closure of specific stores with Covid-19 incidents.”

The group said that online food sales grew by 87.8% in the second half, and by 57.2% for the year, “notwithstanding the need for further improvements to our fulfilment capability in this area”.

Operating profit increased by 19.0% to R2.716 billion, returning an operating margin of 7.7%.

For Woolworths Fashion, Beauty and Home, the second half of the year was severely impacted by the closure of stores and the restrictions on trade, including through the group’s online channel for the duration of the lockdown period in South Africa and the other Southern African markets.

“Since the reopening of stores in May, trade was focused on promotional and clearance activity to drive sales and reduce inventory levels. Sales in H2 declined by 24.1%, ending the year 10.7% down on last year, while online sales  grew by 41.3% in H2 and 35.4% for the year,” the group said.

Woolworths said its Financial Services book grew by 2.0% year-on-year and by 9.0% through 31 March 2020, highlighting the significant drop off in the fourth quarter. Book and revenue growth was negatively impacted by the closure of stores, lower non-essential spend and lower prevailing interest rates.

The trading environment in both Southern Africa and Australasia remains challenging and uncertain and is expected to remain so for the foreseeable future, the group said. “The full economic impact of the pandemic is still unfolding and we expect consumer spending to remain constrained.”

Retail trade sales data out Wednesday by Stats SA surprised many by contracting to 9.0% y/y in July 2020, from a revised -7.2% y/y (previously -7.5%) in June 2020.

“This is despite the gradual lifting of the lockdown restrictions from level 4 of the risk-adjusted strategy in May to level 3 in June 2020, which allowed for further resumption of economic activity, with some consumers returning to work and earning an income,” noted Alexander Forbes Investments.

Annual sales declines were recorded in four of the seven sub-categories, with growth in the other retailers’ categories dropping significantly by 39.1% y/y and shaving off 5.4 percentage points from total sales.

More declines were recorded in the sales of textiles, clothing, footwear and leather goods (-13.8%), general dealers (-3.2%), and food and beverages (-18.4%), collectively subtracting 5.2 percentage points to overall sales.

On a monthly basis, seasonally adjusted retail trade sales contracted by 1.1% in July 2020 after increasing by 6.4% in June. In the three months to end July, sales growth rebounded to 7.4%, while on a year-to-date basis retail sales contracted by 10.3%.

Read: Woolworths targets online as shoppers take to food delivery service

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Woolworths earnings tumble on lockdown constraints